Housing | timiacono.com - Part 30

About Those 4 Million Delinquent Mortgages

After all the better-than-expected news about the U.S. economy reported in recent months, word that the massive backlog of delinquent home loans is about to begin pushing its way through the system again in the months ahead should temper some of the enthusiasm about the U.S. economy in the year ahead. Diana Olick has all the details about the latest foreclosure report from RealtyTrac in this story at CNBC today.

Despite a seasonal slowdown in overall foreclosure activity, and a process still bogged down and backed up by the “robo-signing” processing scandal, the U.S real estate market is about to be hit by another surge of bank repossessions, according to a new report from the online foreclosure sale site RealtyTrac. As banks resubmit millions of documents and courts begin hearing cases again, the backlog of over four million delinquent loans will start surging through the pipeline again.

“November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs [bank repossessions] or short sales sometime early next year,” said James Saccacio, co-founder of RealtyTrac. “Overall foreclosure activity is down 14 percent from a year ago, the smallest annual decrease over the past 12 months, and some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.”

Other states, like New York and New Jersey, are still seeing huge delays in the foreclosure process–986 and 984 days respectively, says RealtyTrac, but they too are starting to ramp up, as various moratoria have been lifted and judges have made rulings that will kick-start the process.

I remember when we’d shake our heads in disbelief when the average time to foreclose on a property reached a year. Amazingly, it’s nearly three years now in some places…

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The World’s Still-Inflated Housing Bubbles

Checking in on the housing bubbles in Australia, Canada, and China…

Word came in this report this morning from The Age in Australia that Economist Steve Keen of Debt Deflation fame is garnering new respect as home prices there are set to drop by about four percent this year with even lower prices in store for 2012.

No news stories about home prices in Canada have crossed my computer screen lately, but, my guess is that, with the global economy and financial markets teetering, there are a lot of new home buyers and investors who are rethinking their purchase decision.

In China, we see shades of the U.S. housing bubble circa 2007 as the LA Times reports the natives are really getting restless, recent homebuyers now protesting outside of the offices of builders who have slashed prices to spur sluggish sales.

Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

Sales have plummeted. In Beijing, nearly two years’ worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

“I still haven’t told them,” Li, 29, said of his home’s plummeting value. “It will just make them worry, and it’s already too late.”

This is well worth reading in its entirety to better understand two fundamental differences between the U.S. and China and how their outcome might be very different than ours.

First, this was a government-engineered slowdown that looks to be accomplishing its objective, however, the fear is that it could be too successful (in which case, the government will likely reverse course). Second, home purchases in China include hefty down payments, unlike the NINJA loans and their ilk  that were common when the U.S. bubble burst.

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Economists and the Housing Bubble

More evidence that economists in general and dismal scientists at the Federal Reserve in particular are hopelessly and dangerously detached from reality (i.e., guided by the mistaken belief that, if something doesn’t exist in their models, neither does it exist in the real world) comes via this Associated Press story about a new study by the central bank detailing how wild speculation drove the late, great U.S. housing bubble.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers noted.

I saw this last week when it was originally published and should have mentioned it at the time (the report from the New York Fed can be found here), but, now that it’s getting lots of attention in the mainstream media it’s a case of better late than never.

Goldman, Barclays See a Bottom for Housing

They say that bottoms for long-term cycles are virtually undetectable in real time because they are so long and so flat with most market participants having lost interest in the sector, as was the case for stocks back in the early 1980s. According to two big investment banks, the long awaited bottom for the U.S. housing market will come in the year ahead, thought it’s not clear if anyone will notice. First, from the Wall Street Journal comes this story about the Vampire Squid’s latest thinking on the property market.

Analysts at Goldman Sachs predict in a new report (published late Friday) that the end of the crash in home values is actually within view.

Goldman’s analysts, Hui Shan and Sven Jari Stehn, project that the national S&P/Case-Shiller home price index has 2.5% to fall before it hits bottom next summer. The Case-Shiller index of prices in 20 large cities is likely to fall 3.5% before hitting bottom in the second half of 2012, they say.

According to this Housing Wire report, a Barclays analyst thinks the non-distressed home market may have already hit bottom and that the rest of the market will soon follow.

Barclays Capital analyst Stephen Kim predicts a housing recovery buoyed by improving jobs numbers and the fact prices for nondistressed homes will have stabilized without government support.

“In the absence of a government homebuyer incentives, prices for non-distressed home sales have stabilized for almost a year,” Kim said. “This is the most important trend in the housing industry right now, and we are amazed at how little attention it has been getting from the media and the street. This stability on the part of nondistressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.”

Of course, freakishly low mortgage rates have had a lot to do with whatever stability non-distressed home sales have seen and, if home prices finally do stop falling next year, it’s hard to imagine they’ll go back up very quickly as lending rates will also be rising.

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