You gotta love this Great Correction. It's gotten so much bad press. And so many people trying to stop it. But it just keeps going...doing its work in the US housing and mortgage market. From Barry Ritholtz...
- There have been an average of 1.6 million nationwide foreclosure starts per year for the past five years.- Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.
- Bank repossessions are still down 18% year over year. Voluntary foreclosure freezes and increasing pre-foreclosure sales are the primary factors.
...2.8 million Americans are 12 months or more behind on their mortgages.
This truly amazing data point represents a very sad fact of the housing market. Once a homeowner falls that far behind in their mortgage, the odds are that they will never catch up. (Mortgage mods are likely to fail at an exceedingly high rate as well). Nearly all of these 2.8 million homes are likely to be some sort of distressed sale - short sale, auction, walkaway or foreclosure.
The bottom line is it means we are looking at a minimum of another 3 million homes going into foreclosure (or some variant) over the next few years.
Beyond the coming wave of foreclosures, credit availability is another factor holding housing activity down:
Since 2007, 19% of all borrowers (~9 million borrowers) have gone >90 days delinquent on their mortgages, or have had their mortgage liquidated.
In other words, one in five people who held or qualified for a mortgage not too long ago would not today. The 90 days delinquency on their credit reports prevents them from qualifying for a new mortgage.
This is a very significant data point to the idea of a housing turnaround. Why? Based on this delinquency alone, nearly all of these borrowers - about 9 million current homeowners - would be unable to qualify for [a] bank loan today. That is 9 million potential home buyers who are effectively barred from the market due to their credit scores. Removing that many people as potential home buyers amounts to a huge reduction in demand.
Isn't that terrible? No, it's just a correction correcting the overbuilding and overbuying in the US housing market. And here's more correcting....
(Reuters) - New claims for US state jobless benefits rose for the fifth time in six weeks and consumer prices fell in May...
Terrible again, right? Wrong...the correction is doing what it's supposed to do. Bloomberg:
Americans are digging themselves out of mortgage debt.Home equity in the first quarter rose to $6.7 trillion, the highest level since 2008, as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The 7.3 percent gain was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data.
Residential mortgage debt peaked in 2007 at $10.6 trillion, doubling in six years, according to Fed data. Since then, it has fallen 7 percent as the value [of] all residential property has dropped 23 percent.
for The Daily Reckoning Australia
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