There are a number of reasons to worry about the current housing market. The housing affordability rate actually got worse last year despite collapsing home prices. Home mortgage obligations are still historically high.
However, the biggest concern is the massive overhang of 7 million houses of shadow inventory.
(Bloomberg) -- The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.
The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.
It isn't just Amherts saying this. Insiders on both coasts are expecting it.
"There's going to be a flood [of bank-owned homes] listed for sale at some point," says John Burns, a real-estate consultant based in Irvine, Calif.
"We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to "abnormally low" levels in response to government efforts to stem foreclosures, she adds.
We aren't talking about people in danger of falling behind on their mortgages and the banks waiting to pounce on them like vultures. We are talking about people who are at least three months behind on their mortgages and the banks haven't even started the foreclosure proceedings.
In some cases we are talking about people living in houses for a full year without paying their mortgages and the banks still haven't moved to foreclose on them.
As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages.
Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.”
The cure rate for mortgages like these are next to zero. These people will be foreclosed on. It's only a matter of time.
Adding to this foreclosure wave is the coming end to massive federal subsidies for the real estate market, and an intensifying credit crunch.
It's hard to see how the modest seasonal bump in housing will have any sustainable follow-through.