Time To Sell Foreclosed Homes Hits Record

Tyler Durden's picture

Those who recall about the implicit housing subsidy we discussed when we coined the term "foreclosure stuffing" which is merely the well-planned systemic bottleneck to clearing foreclosed properties already in the system, and thus artificially reduce housing supply will be happy to learn that according to RealtyTrac the average time for a foreclosed property to sell just hit a record at nearly 400 days across the entire nation.

And for those curious what is really going on in the housing market when stripping aside all the artificial supply and demand-side stimuli, here is one of the best summaries courtesy of housing expert Marc Hanson (by way of Doug Kass):

  • Per Zillow...>44% of US Homeowners are Zombified; Over 60% when including income/credit restrictions
  • As a result, the nations' "Maximum Potential Demand" profile has been gutted; evident in mediocre Existing & New Home Sales volume
  • With structurally weak organic "Maximum Potential Demand"; First-Time buyer demand at 4-year lows; Distressed Resales at 6-year lows; New-Era "Investor" demand falling sharply on every dollar house prices rise; and rates rising where will demand come from to carry this sector going forward?

Important research came out of Zillow last week on "effective" negative equity; a term I coined relating to a novel thesis I have been working with for 3 years, which few understand, respect, or model...I suppose until now. (Zillow report link here)

In short, per Zillow 44% of all mortgage'd homeowners -- the core of US housing demand & supply -- are Zombies; 60% when including those lacking sufficient income or credit needed for a loan. As a result, the nations' "Maximum Potential Demand" profile has been gutted.

1) "Effective negative equity" is central to my "structurally broken housing market in need of years of deleveraging before a "durable" bottom can occur", theme. I have been pounding the table over "effective" negative equity for years and finally it's mainstream. Chances are this one report will be blown over. But like with "shadow inventory" -- when this thesis grabs hold -- ultimately everybody will be talking about it, it will raise uncertainty, and economists will have no choice to respect the "math". And the math requires housing sector estimates have to be ratcheted down. This literally changes everything with respect to housing 'demand and 'supply' fundamentals.

The Zillow report confirms there is still a ton of de-leveraging to do before US housing has a shot at a "durable" recovery. Remember, in the past everybody could always sell and rebuy all of the time. Equity -- or a lack of it -- was rarely a problem because before the housing bubble loans required down payments. And during the bubble no down payments were needed. Moreover, house prices always rose during these periods. What created "zombies" prior to the housing crash was employment, income, and rates. But now it's all about the equity. And with such a large percentage of homeowners in a negative and/or "effective" negative equity position the "Maximum Potential Demand" profile of the housing sector is much weaker than it ever has been before.
April Existing and New Home Sales released this week also confirm this fact. Ask yourself this...with several years of pent-up demand sitting out there, sentiment obviously better, and rates never seen before in history, why have Existing Sales rebounded so much more than New Sales? Why are April New Home Sales down still down 62% from their mid-2000 highs while April Existing is only down 27% form the mid-2000s?

There are 2 reasons:

1) the existing sales incremental buyer and price pusher -- the new-era "investor" who routinely pays 10% to 20% more than the house is worth treating it as a high-yield bond or dividend stock replacement trade -- doesn't call Lennar or Hovnanian for opportunities; 2) and because 44% of all mortgage'd homeowners -- the primary builder and repeat buyer demand cohort -- are technically underwater...over 60% when you factor in those who can't sell and rebuy due to weak income, credit, or old legacy HELOCs never written off or bankrupted following borrowers around like a ball and chain preventing them from getting a new loan.

Bottom line, with over HALF of the nation's primary demand cohort stuck in their houses as Zombies, the nations' Maximum Potential Demand' is HALF of what it was in the past. Finite organic buyer demand has serious implications for durability, volume, future sales , and macro housing consensus estimates. This also means that the traditional "6 months supply" being 'normal', for example, is perhaps too high; maybe the new-normal is 4 or 5 months supply.

2) Housing is going through a demand spurt no doubt. The smart money was the institutions that began buying two and three years ago. On Twist -- and a plethora of media coverage on Wall St buying bulk housing pools and participating in County courthouse foreclosure actions at year-end 2011 -- everybody become a distressed house flipper or rental professional. Towards the end of last year all the hoopla and press coverage activated the "dumb money" -- which includes pent-up demand -- which are "retail" who are pouncing early this year and chasing the market into summer. But the numbers are not there...repeats can't support this market. April Existing and New Home Sales and the Zillow data prove it. This market needs investors and first timers, like it had from 2010-2011. But now First-timer volume hit fresh 4-year lows last month and distressed resales 6-year lows. It's a sad state of affairs when rates are at historic lows and First-Time buyer demand is at 4-year lows.

3) I think there is a good chance the housing market is about to experience mid-year volatility never seen before mostly propagated by malinvestment from P/E funds using cheap money to buy up all the distressed housing and turn them into rentals. There is no "housing shortage" problem in the country with respect to "places to live". When including SF construction, MF construction, lack of demolition, the past 5 years of foreclosures of vacant house, rentals and 2nd houses, 14mm vacant of mostly vacant houses, and lackluster household formation I argue there is plenty of houses out there in which "to live". There is simply a transitory dislocation with respect to houses in the "for sale" bucket. Builders are being opportunistic and capitalizing on this right now. But if I am right and the "housing shortage" problem is only a allocation mirage then forward estimates are wildly aggressive. And obviously, if this is still a free market and demand is strong enough this supply will find a way to market.

Bottom line on the Zombie housing market: Of the 54 million homeowners with mortgages -- the primary repeat buyer cohort and a primary builder demand cohort -- over 22 million are dead to the housing market. Of the 70 million homeowners -- mortgage'd and free and clear -- 33 million are Zombies. Thus, we can't expect housing to act like it has in the past. With so many Zombies it will be impossible for repeat and new home sales to perform as expected. The past 18 month bounce -- especially on prices -- has been on cheap and easy money from investors looking for a dividend stock and/or Treasury replacement trade. some foreigners following their lead, and finally the 'dumb money' (retail) chasing into this summer.

But we are running out of greater fools very quickly, especially with first-timers sidelined and new-era "investors" who are quickly pricing themselves out of markets nationwide.

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LawsofPhysics's picture

bankers wet dream, they control supply (by deciding when all the foreclosed property comes to market), and they control the money/credit supply as well.  Even better, they get to collect fees when they "work" by creating money out of thin air as well as getting ZIRP money and ripping off the treasury/taxpayer with higher yields on the bonds they buy (what's 0.5 % on 500 billion).  You get to work for wages with decreasing purchasing power and pay them interest until you die...  Yet no guillotines are rolling yet, stupid sheep.  The captial and resource mis-allocation continues...


I remain long black markets and sharecropping...

fonzannoon's picture

"Like a steam engine leaving the station, the American economy is gathering momentum: the wheels are turning, the engine is pumping and the engineers have opened the throttle full bore. If only Washington would get out of the way. "


Dr. Engali's picture

The thing that kills me is they actually think people believe the bullshit propoganda they write. Ask the average person on the street, not the white shoe boys, and they know the economy sucks. The disconnect is amazing to me.

fonzannoon's picture

Doc I wonder if this is less about a disconnect and more about mind control. If they keep pounding that message home, no matter how false it is, more people will start to believe it and the more you will sound crazy when you try to correct those people when they regurgitate that crap.

Dr. Engali's picture

You're absolutely right that's is what it is. And it works on the idealogues, but the average Joe who has to feed his family isn't buying it.

disabledvet's picture

Well that is real money being plunked down and in the information the term "find me a buyer" takes on a whole new meaning. What stands out indeed is a lack of new construction. This will drive DOWN the cost of existing housing stock massively...hence I fail to see a new bubble here. "market manipulation" fer sure...but that is what Wall Street does for a living. No market goes in one direction forever however...and I fail to see how higher rates through "tapering" is good for banks and bank lending...especially in the real estate area. Seems to me you're constricting credit to John Q Public since now even more money will stay inside the bank to be "carried."

Buckaroo Banzai's picture

400 days is the AVERAGE. That means for every foreclosure that gets disposed of in 100 days, there is one that has been in foreclosure for TWO YEARS.

What a fucking joke.

MagicHandPuppet's picture

I'm hoping my rental will take 2 years... that would be a nice break.

CrashisOptimistic's picture

Item 1) The sequester didn't start til March 31.  It's not even in the Q1 GDP data.  Q2 will be much weaker.

Item 2) We all know oil is the only arbiter of activity.  With all central banks printing to cheapen their currencies and boost their exports, they SHOULD also be enduring pain on their imports, but the oil country economists have explained to their oil ministers that "if you destroy our customers, we get nothing for oil, and we have no interest in trading something that really matters -- joules -- for something of no use to anyone, gold.  So we have to put up with $104 Brent prices, and only $104, because if we take that price up it will destroy our customers."

Item 3) You can't stop the slowing global activity (due to net joules decline) by printing money, but you can sure camouflage it all for a while.  None of this silliness is going to stop until houses are priced in joules, and that's not going to happen anytime soon.


TheEdelman's picture

No Fonz.  "Surprise! Surprise! This Economy Is Looking Strong" is as deragatory a title a cnbc article can have.  No mind control.  Just pure FU to the little people.  

Translation: "Surprise! Surprise!  You're an idiot for ever thinking (for one second) bernanke, krug, cnbc could be wrong.  Our junk is large and yours in minute."

YC2's picture

I thought Tyler didnt use first person singular?

Groundhog Day's picture

Wave 3 in elliot wave principal is the most painful

Not that i buy into elliot wave alanysis

tornado_watch's picture

Anyone else notice all the shoppers in that picture...

Blano's picture

The ultimate oxymoron: "Federal spending cuts."

Kasperfx's picture

look in the back of the steam engine , it's none other than Bernanke and the bankers pushing what you thought was moving on it;s own..


I say it again and again "IF IT'S NOT ORGANIC IT'S NOT SUSTAINABLE!!!

greyghost's picture

lawsofphysics.....well said

lordbyroniv's picture

400 days my ass Zero Hedge........


my cunt sister in law hasn't paid her mortgage since 2008


Still fucking living there !!!!!!!!!


I on the other hand...am an idiot sucker for paying my mortgage,

Bay of Pigs's picture

Time to save your money for the final countdown?

Groundhog Day's picture

I have a secret i will share with everyone on ZH.  I know exactly do the day when the SHTF and bank accounts are frozen and property is seized by the government .  My last mortage payment is on oct 5th 2013.  That's how my luck rolls!  Your welcome

Rentier's picture

No more suckers left to buy them...

HelluvaEngineer's picture

Please. A used house? That's worse than a used car. /yuppie

duo's picture

400 days is a lot of weeds and uncut grass (and swimming pools teeming with West Nile mosquitoes).

Rentier's picture

Yep, I know house built 9 years ($260k) ago that has sat vacant for 6 of those 9 years because it is a countrywide foreclosure and still sits vacant to this day.

Petrus Romanus's picture

And they say housing starts are up too. Why would anyone build when there is such a glut of structures being kept off the market?

Miss Expectations's picture

...because there is a glut of structures being kept off the market.

kaiserhoff's picture


   as in Section - 8 taxpayer takes it in the ass housing.

Back that out, read the real numbers, and weep.

earnulf's picture

Joe Sixpack is not going to be buying a house at the current levels.    A home that was foreclosed for 25K two years ago got a "renovation loan for 48K and the new owner turned turtle and stuck Deutsch Bank with a 75K bill on the property.    It's worth maybe 33K as much of the "renovation work" never happened or was done shoddy.    Bank refuses to take a bath, so the property lingers, renters in and out and meanwhile it just goes to pot.

Until the banks are ready to suck it up, they just keep hoping for a white knight sucker to come along.


Peter Pan's picture

I fear that the houses on my Monopoly set present better value.

400 days to clear?

Thats a pity as eonomic armageddon can't wait that long.

buzzsaw99's picture

It's not like first time buyers wised up, the $8K rebate pulled demand forward.

Judge Crater's picture

You usually need a pretty good paying  job to get a mortgage.  Middle class jobs are vanishing, replaced by low paying Walmart type associate jobs.  The real story for me is what is going on with the Boston Marathon Bombing investigation.  THe FBI agent's killing of  Todachev (the Chechen immigrant who knew bomber Tamerlan Tsarnaev) in Orlando is beginning to resemble an execution.  Todachev's father had a news conference where he said his son was shot seven times, once in the back of his head.  RT's Truth Seeker show 14 on the Boston Bombing includes a clip of Tsarnaev being put in a police car after his shootout, alive and walking.  All the stories we have now on the IRS and on the wiretapping of AP and FOX reporter James Rosen are the result of Obama administration leaks to the Washington Post after the bombing.  Those stories pushed stories on the strange details of the Boston Bombing attack off the news cycle.  The CIA agent in Moscow who tried to recruit a Russian FSB agent offered the guy 100,000 euros in 500 euro notes.  10 times too high a payoff unless the CIA director okayed it.  That FSB agent had connections to Dagestan and Chechnya.  Obama is trying to claim Tamerlan was a double agent working for the FSB, to divert attention from all those videos showing Craft security personnel at the marathon finish line with black backpacks.  Just like the one with a bomb in it.  Those news stories in the press now about the AP spying may cost Holder his job, but Holder wants to leave anyway to get a job at Goldman Sachs in their London office.

You notice that now the FBI states that Tamerlan Tsarnaev was involved in the killing of three pot dealers on 11Sept2011.  The Boston Police Department knew Tamerlan was a prime suspect, yet they let him leave the country anyway.  Those murders were to have remained cold cases.  Only now, the FBI is worried that Tamerlan talked too much to someone after the bombing.  Todachev is a guy with a bum knee, dies after allegedly lunging at an FBI agent. Todachev taked to Tamerlan after the bombimg, which signed Todachev's death warrant.

You can't make this up.  Amateur night, only the losers here who are involved with covering up the Boston Bombing facing long  jail time.

mendigo's picture

I think this analysis over complicates a bit.
On average it makes no sense to buy a home unless prices are stable to rising. I am not seeing signs of demand in my area suspect this perception is fabricated based on isolated markets and low volume.
If you own a home you are stationary target for local tax authorities in search of pay raises.
Prices may fall taxes will rise incomes are flat except for investment bankers. Education costs leave hamstrung young workers.

Total bullshit.

Catch-22's picture

Very weak article…


Makes the point that the housing market is totally artificial and therefore we should avoid it…

Fact is ALL markets are totally artificial now and are SKYROCKETING!


What was that?



IridiumRebel's picture

It's not about trading, it's about what is going on. When you get your testes ripped off we will see ya here Cpt. Nimble.

Bay of Pigs's picture

People like him are the reason we're here...

Fucktard Nation

IridiumRebel's picture

House has been on the market since last August. Started at 190K(realtor suggested) and we are at 165K and we STILL cannot get anyone to buy. One offer, but lady had 3% to put down and then Lost her job day of signing. Completely redone floors, all new paint, new roof, new appliances and deck. NADA. I could offer it on Craigslist free and would still sit. I'll never buy another house again.

Seasmoke's picture

Man , you still haven't sold that box with a roof yet. Sorry !

Catch-22's picture

If I may…


IMHO, if you’re in a position where you can hold on for a little while…

Right or wrong, they are inflating that bubble again.

As a “food for thought” thingy: my brother in law sold his dream house last year for 350K (he build it himself for about 450K). Since the market in our aria is up 25% yoy, he would almost be at break even had he kept it… by 2015 his going to put a gun to his head.

Bay of Pigs's picture

So what. Big fucking deal. Now junk me nigger.

IridiumRebel's picture

I need mobility. I have thought about renting it, but I'm no landlord. I appreciate the comment.

orangegeek's picture

obviously another real estate boom is unfolding.


RSDallas's picture


Let's all pray that sales never reach the peak they did in 2006.  The new home and re-sale market is screaming right now.  It is far better than anyone is giving it credit for and your concern of the Zombie homeowners will only have slight negative drag on future sales.  Many of these Zombies deserve to be Zombies.  They are some of the idiots that popped the bubble in 2007.  They are the ones who used their homes as ATM's and thought the party would never end.  These were the qualified gamblers whoa re indeed trapped.  What is happening in the market now is a slide back to a normal and balanced market.  If there is such a thing?  What is going to derail the housing recovery?

   (1)  The Fed.  Interest rates are going (and maybe have started) to overshoot to the high side. This will not affect the entire universe of buyers.  Some will opt. for a smaller less priced home.

   (2)  For the builders it will be lot availability and lot price.  There has never been a time that I can remember is my 24 year tenure in Real Estate that I have seen so few replacement lots on the ground and what is coming online is terrible expensive. 

   (3)  Re-Sale inventory is at an all-time low right now because the system has been somewhat washed out.  There is a huge group of homeowners who simply do not need to sell.  And who, in their right mind is going to sell their home, into a rising price market, when they have a purchase or re-financed fixed rate of 3.5%?  It would not surprise me if someone at the Fed. saw this as a possible result of the re-finance binge that has swept through the US.

   (4)  Job growth and wages continue to either stagnate or drop as they have been.

   (5)  The leaders of this country convince the lenders to once again make phony loans to the zombie class and blow things up all over.

   (6)  Europe blows up.

   (7)  The banks unleash more than anticipated levels of foreclosed homes on the market all at once.  I really don't think this will have a noticable impact.



SmittyinLA's picture

I'm jumping feet first into the Socialist bandwagon, I'm hoping to buy an Obamahome with 30% of my disability income from the state, then get a few immigrant Muslim wives too and start cranking out income, if Amerika is going full retard Socialist I'm gonna bend the bitch over hardest.

Go Tribe's picture

Do you plan to sell the services of those muslim wives? There might be huge demand by the retribution types.

Mi Naem's picture

Yeah, well, who wants to wait a month or two to get the ROE managers' signatures on a sales contract, then a year or so to close, by which time you have no idea what the interest rate will be. 

Overflow-admin's picture

Just a year... that could be much worse!


Exponential functions are, bitchez.

PT's picture

Oh there's plenty of houses for sale, you just have to work harder so you can afford to buy one.

Bullshit of course.  Let's be more accurate:

Western world wake up!  Your land is being stolen from you.

If free markets existed, then all workers would be able to find a home that they can afford.  Something to do with competition and stuff.