Foreclosure Market Gets More Complicated

Most data about the housing market shows that foreclosures and delinquencies are up. Yet, other information contradicts that. RealtyTrac said foreclosures fell to a multimonth low in July. Its CEO said that is temporary, though. Once court battles over foreclosure methods are settled, foreclosures will hit the real estate market in greater numbers. This inventory, most of it to be sold at low prices, will further wreck the housing market.

Two pieces of data were release yesterday that cloud forecasts of future home market trouble. The Mortgage Bankers Association reported that, “The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, an increase of 12 basis points from the first quarter of 2011, and a decrease of 141 basis points from one year ago.” Foreclosures usually rise with delinquencies. The MBA information should indicate that foreclosures will increase for the balance of the year.

Standard & Poor’s released information that the “shadow inventory” held by banks dropped. These homes have not been put onto the market even though banks own them due to foreclosure proceedings, or they are being held by owners who cannot sell them but would like to. “We estimate it will take 47 months to clear the national shadow inventory. This is five months shorter than our estimate at the end of first-quarter 2011 but still six months longer than our estimate one year ago,” said Diane Westerback, managing director of Standard & Poor’s Global Surveillance Analytics.

There several expert predictions about how many homes will be left unsold at the end of the year. The most widely believed estimates are that it will take nine months to clear all of the inventory of unsold homes in the U.S., both those foreclosed and those to be sold in the normal course of affairs. That figure is as high as 40 months in some markets.

The S&P data is not as good as its seems. Procedural problems that have left foreclosed homes unsold should be settled by year’s end. Shadow inventory is not as good as it first appears. Forty-seven months is still an extraordinarily long time. Some small improvement is hardly encouraging. Shadow inventory and unsold foreclosed homes are like two rivers that have joined to make a larger one. And this flow does not include the additional foreclosures that will come into the market soon because of unemployment and mortgages that homeowners can no longer afford.

The largest question about the home market is how soon prices will recover and sales pick up. The answer is that unsold homes are still numbered in the millions, buyers are not in the market even with low mortgage rates, and intransigent unemployment is expected to stay high for at least another two years.

Douglas A. McIntyre