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Foreclosure Inventory = 103 months
From The Daily Capitalist
In a piece from the Wall Street Journal on Saturday, LPS Applied Analytics estimated that foreclosures would create so much market supply that it would take 103 months to liquidate it.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years.
The HAMP (Home Affordable Modification Program) program started by the Obama Administration is trying to modify loans so that lenders will not foreclose:
According to Goldman Sachs, HAMP started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.
All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.
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Way too much govt involvement. Housing/mortgage situation is a politicians dream...complicated and totally out of touch with reality. Basically the easy money party is over and everyone is pissed about it. Not sure its healthy for the govt to take major positions in corporations, pick and choose favorable accounting changes/holidays, and basically move a substantial amount of private debt to the public side. Its never been done......yet everyone thinks its fine. Comared to when? How is this economic cyle, or housing cycle compared to anything, ever?
Disclaimer: 20% long, otherwise sitting on cash. My pretend account has a limit position in the only spread we all should have on right now, Long stocks / Short economic reality.
Fahrenheit 451 takes place in an unspecified future time (dialogue on one page places it after 1990, as one character states that it was 50 years after the V2 attacks, which roughly places it in 1994 - 1995) in a hedonistic anti-intellectual America that has completely abandoned self-control.
I'm thinking the FED employs fire men to reduce excess housing capacity.
Serf, very clever.
"I'm thinking the FED employs fire men to reduce excess housing capacity."
IMHO very possible.
I can hear the political cry now. "Bring back the urban renewal polices of the 60's and 70's." Only this time imagine knocking down entire tracks of unsold homes or even a few here and a few there. I can see the propaganda posters now.
"Uncle Sam, keeping America strong by maintaining your property values so you can refinance."
Many rust belt cities (Detroit, Buffalo, a bunch in Ohio) are demolishing vast tracks of abandoned land. Some say they will make parks, some don't say anything.
My urban renewal theorem would be along the lines of huge masses of elderly boomers needing housing/nursing homes. Think about the lack of savings, the 401(k)s devastated, SS gone, there will be a mass of impoverished elderly like in the '30s, and they can not count much upon their families for help. It also fits into the whole healthcare expansion.
Nursing home projects, coming to a city near you soon.
Once Fannie and Freddie ratchet up their purchases of these defaulted loans the foreclosure rate will magically begin to decrease. This my friends will prove to be as smart of a decision as social security and medicare, because the liability to the tax payer will be HUGE. The funny thing is that I don't think most Americans even know, or care that Fannie & Freddie are buying loans that have already defaulted. This is going to end up being BAD BAD BAD.
I would assume Obama intends on using this stockpile of foreclosed homes as a source for his soon to be announced "new public housing initiative". Look out America, section 7 housing finance is coming soon to your neighborhood.
One more tid bit. A real good friend of mine that works for a mid size home builder in the Dallas area told me that they have a net sales rate of 7 for April. They would usually have 25 to 30 net sales during the month of April. This is a company that has surprisingly performed exceptionally well over the last 2 years. They have even grown their business during this time. Their sales staff is saying that new buyers walking in the doors are virtually non existent. Is this a coincidence or is this what is to be as the government steps aside?
HMMMMMMMMMMM.....my guess is......look for another taxpayer sponsored first time buyer program in the very near future.
California Unemployment Rate hits record hight of 12.6% in March, yet stock of Las Vegas Sands hits 52 weeks' high. Is that means most of unemployed California have nothing to do but go to Casios for luck?
The market is in the middle of its second leg down. There will be two more legs down following the current. It will hit great depression level. The market will bottom in 2-5 years, depending on the region and area of region. Also a concern for real estate is peak oil. Suburbs will be hit hardest. Cities relying on NG or coal will also be hit hard.
Thought about that scenario as well. A fairly orderly move lower, but lower for a while. Not a panicky deal with limit moves and giant jet-wash ranges in the Dow like last time. Just a slow, several year break.
To be specific, I think that the Housing markets will have MASSIVE moves down in REAL terms (inflation adjusted). Nominally (not inflation adjusted) the numbers will float downward slowly. Inflation is at 11%.
So, Friday night I went out with a friend of mine that I hadn't seen in nearly a year. It was a fairly expensive dinner.
When he paid is portion, he made a comment about how he probably can't do this again for awhile, since he's got to start paying rent in a month. Then he told me that he's been living mortgage free for the past 15 months, and now the bank is finally kicking him out.
So here's a guy, foreclosing on his house, yet still eating expensive dinners. And it made me think of the article written on this site recently about how consumer spending is at articial levels, due to people spending money that would normally have gone to mortgages or rent. Instead, everyone's buying ipads and eating out for dinner until their day of reckoning comes.
With millions of households living mortgage/rent free for 12 or so months, you've got to wonder what will happen to consumer spending once those families are forced to start paying rent. No doubt, money that would have been spent on mortgages is propping up retailers and restaurants and other consumer outlets.
that is a excellent example, and one which i shall share with the sheeple i know. thank you.
** Edited for Content **
It's not just that, but consider the other distortions it creates. For example, to the extent that people default on a mortgage and do not need to pay it back, this represents a huge surge in that person's savings. For example, say I have a $250,000 mortgage with $2,500 per month mortgage payments and now the house I took the mortgage out on is really worth $150,000. I then decide to stop making mortgage payments and wait for the hammer to fall. Given the way current macroeconomic numbers are tabulated and how accounting valuations are no longer marked to something approaching true value, what just happened? First, as noted many people just take that $2,500 and spend it on consumption, and some save some portion of it. Thus, on the macroeconomic side, consumption and savings look like they are going up until the hammer falls (ah, th best of all fairy tale worlds). Of course something must give, clearly the bank or finance company must be taking a $100,000 hit? But no, because of 'extend and pretend' they are looking just fine. Of course, this can only end one place, that is, badly. Eventually reality will have it's day and consumption, savings, and value will move down by at least $100,000. Do this calculation over the millions of households this has and is happening to and you have our current trip to economic purgatory.
And this doesn't include the 2nd wave of ARMs that are resetting (ALT-A, etc) in 2010 and 2011. Add another 1-2 million to the barbie.
I'm sorry to overdemonstrate my ignorance, but can someone please explain to me why regardless of whether we have 103 months, 93 months or even 53 months of inventory subject to foreclosure, everyone thinks that the "housing starts" number is so important? Doesn't it make sense to clear out the empty existing (empty) stock before you glut the market with new inventory?
Signed,
Perplexed.
A lot of it is being driven by the tax credit. Also, the market has been tights in some areas because of flippers which frustrates buyers looking for deals. And, people tend to prefer new homes to "pre-owned" homes. But, looking at it, the homebuilders are rolling dice.
So the insiders at home builders and market makers can sell into strength to retail investors that consider that indicator and because it takes time for misleading indicators to be no longer useful
Read Bloomberg's "A Trader's Guide to Key Economic Indicators"
Builders are just trying to stay in business. Most small contractors are out of business. The big boys have cut way back. Starts have fallen from 2.5 million to under 400K in the past couple of years. Plus, the big builders have shadow inventories, too. They keep completed homes off the market in a vain attempt to prop up prices.
Homebuilder stock prices should be hovering near zero, but they seem to be riding the wave, too. I guess crap floats to the top.
Remember a builder who built one house last year and is going to build two houses this year can say his business has doubled. He just doesn't tell you he used to build 24 houses a year. In our town, they built over 2000 new homes in 2005, in 2009 less than 50. That is boom to bust.
Meanwhile, in a galaxy far far away, there is better news:
Sales of New Homes Rocketed Up 27% In March! (Washington Post)
New Home Sales Rise Fastest In 47 Years! (CNN Money)
Please see my comment after kaiserhoff's comment.
It's the elephant in the room, and your confusion is not entirely surprising since the problem is down-played by the government and "news" analysts:
In short, the housing market is huge (historically some 17-18% of GDP), and a strong indicator of future economic activity. It contributes to GDP through private residential investment (historically some 5% of GDP), and consumption spending on housing services (historically some 12-13% of GDP). These numbers showing bigger "inventory" suggest that both those contributions to GDP will drop. (IMHO, these numbers also under-estimate the problem.)
Unlike the 40% of GDP from Wall Street (insane leverage for an artificial extraction of fees, a drain on the economy), the housing-and-services market is *real* activity that benefits *real* businesses and people, and these numbers show it is suffering severely (and will get worse).
There's the "real" economy (real people doing real stuff), and the "artificial" economy (paper-pushing overhead that doesn't create any widgets), and the housing market epitomizes the former while Wall Street epitomizes the latter. These numbers are a big deal because they show the "real" economy is hurting (the "fake" economy is actually somewhat irrelevant for most people).
[EDIT], Just re-read your post, sorry, I think you asked why housing starts is such a popular number when inventory overhead should be the focus. Yes, you're right (inventory overhead is FAR more important), but they are related: "Housing starts" should be an indirect reflection of "inventory overhead". The "analyists" focus on "housing starts" only because it's expected to be a more direct indication of future-stock-performance for Home Depot. In reality, "housing starts" is a lagging number behind "inventory overhead", and the share price of Home Depot is a lagging indicator behind "housing starts".
Please see my comment after kaiserhoff's comment.
That does seem passing strange. I think the rational part of the "starts" is multifamily ie apartment buildings in areas where too much stuff was converted to condos. Now as to how they finance this stuff in the current market.
Je no cest pas.
Thanks to you all. I am grateful for the obvious time that you took and for the clarifying comments.
Now back to buiding my underground shelter and to my vegetable canning.....
Cheers.
It should be: "Je ne sais pas". Do like Fab, find a frenchie girl and send eroptic messages in french to keep current. Or better for us all, just stick to english.
recall the old west, aunt tilley milking the goat had her shotgun nearby!
We are close to that point where we need to keep an eye on strangers.
I was a tax payer, consumer and citizen .Now i have become a liability and a target of the needy.
OH how the world turns.
But cramer said the housing market bottomed last july? Are you saying cramer was wrong?
does the law-abiding honest U.S. citizen get affordable housing under the pretend and extend policy?
Tents, sleeping bags, plastic tarp and lots of company. Of course once you have placed your tent you are probably breaking the Private Property law.
Remember folks , the law still works for us...er ..against us common folk
I have commented elsewhere about the growing number of people living in Walmart parking lots. On the far edges of the big box store parking lots you can see the vans and RV's of the newly homeless (along with some travelers). This phenomena will continue to grow in the Sunbelt as people look for alternatives to renting once they are foreclosed upon.
I know several people who haven't paid their mortgages in over a year. They haven't received any foreclosure notices from the banks. In fact one friend received a letter from the bank letting him know they paid his property taxes last month. Another guy has received notices, but is still in his home with no payments since 2007.
I think the real estate market is so screwed up, it will never recover. The government has taken over the mortgage market (bad sign for any business), and the banks don't seem to care. Current prices in my state (AZ) are below cost of construction of the structure (lot has no value). Condos are even worse shape than houses, because they are harder to finance. Cash buyers are snapping up foreclosed ones for pennies on the dollar of their former prices ($100K+ condos now $30K).
Legacy landlords (bought before or during boom) will soon be competing with new landlords buying properties out of foreclosure. Should be bearish for rents, but offset some by higher demand for rentals (people can't get loans due to screwing up their credit). Landlords can't compete against free, and free rent is what the banksters and government are now giving people. Should make for a very interesting couple of decades.
And delinquencies still rapidly rising for both residential & commercial (jump for chart): http://resecrets.com/blog/5/think-the-real-estate-crisis-is-over/
Allow me to post that chart for you.
Better add a 16% and 18% range for Q1 & Q2 2010
LOL
Ripped Chunk, the official Zero Hedge optimist. :>)
Hey! Let's party! It's only money! No one is going to die (as far as we know.......)
Good morning , and thank you CD
Think about the 20 and 30 somethings who had just bought a home before the bubble burst. Why not take a small hit to the credit score and unload that monster debt, rent something smaller (or move back in with Mom and Dad, or go live in Aunt Marge's beach cottage while you telecommute)? Better yet, just quit paying and live rent free until your number is called?
No wonder Dimon said the US has to rethink housing finance.
The American Dream has changed and does not include home ownership. Homes no longer go up up and away in value. They are now gargantuan liabilities with uncertain values.
yup
I am one of those 30 somethings. We bought our first home in 2006. We are under water, up to date on all payments, including our credit crrd debt. We are the stupid ones. We are actually paying our bills. I keep trying to fool myself into believing, in the long run we will be a winner. Not likely, but still stupid enopugh to believe my own lies.
For you and all in your situation I have empathy, and applaud you for doing the "right thing". I think trav7777 is correct however. The "right thing" from a moral standpoint can quickly become the "wrong thing" when looking out for your own and your family's interests going forward.
If the bank will not cut you a break, I'd tell them to pound sand. Now or never.
Good luck curbyourrisk.
after TARP and the other bailouts, there is no more "Right Thing." I would never ever default on a human being in an arms length transaction (buying a car, property, etc.) but any corporation, esp. one that received my tax money can go F themselves. If I can find anyway out of paying back these scumbags, I would do so with no remorse; a couple years ago I never would have said that. The FED paid them for me.
Moral Hazard BITCHEZ
I did the same thing but I took my mask off and looked.
Think strategic and then set the plan in motion.
Go buy a newly lowered price home now to take advantage of the gov't $6500 tax credit. Then you default on your current home that is under water. It will take a minimum of 5 months to be foreclosed if the bank decides to do so immediately. It is unlikely that they will actually foreclose as that is still your primary residence.
After the foreclosure, it takes about a year to regain a 700+ FICO. The net gain is at least 5 months of payments in addition to the new home that should have instant equity.
Profit.
You must default when it makes economic sense to do so.
Your lender would call the loan if they were entitled to do so and it made business sense, and they would default on their own obligations if it made sense to do so.
stop confusing a contract with a moral obligation
You're not stupid.
The day of reckoning for those that are not paying their bills will come. They may be able to live on the cheap for a few more months but where and when do you think confiscation starts first?
When governments are desperate, they will hound those that owe the most and don't pay. Any penny these people earn will be scrutinized and accounted for.
Government will move these people into housing complexes where they can feel proud for not having paid their bills but rest assured, they will never ever have a chance to really participate in the economy again.
My advise to those who are not paying is to leave and change citizenship.
I have the same problem. We're the fools for paying our bills.
I have the same problem. It is hard to be a deadbeat.
Fuck Dimon. The government is too fucking stupid to figure out that if they stopped doing 97% LTVs, then the prices would come down. The 125% Ditech loans NEVER made any sense. Max 80% LTV and loan originator on the hook for the first 10% in losses and you watch how fast home finance gets straightened out... and shutdown F/F - all those losses and graft for a 7 bp decrease in IR?
There Jamie, problem solved.
QQQBall, totally agree. If they (the govt.) wanted to make that happen, it would happen. Done. RULE CHANGE...No Tears.