Despite what you are hearing from the government and Wall Street, housing is not bottoming. Not even close. Today's shameless housing is better number was that 2ND qtr home sales were really good. Well, could that be because foreclosures/short sales are now making up 30% of sales? I am thinking when all of that shadow inventory hits the market, crushing prices, sales of existing homes will also explode higher, forecasting another major run of for housing. Yes, this will be the government/Wall Street spin.
Lets just put aside shadow inventory for the moment. Lets take a look at negative equity homes.
Millions of homeowners are likely to find themselves in worse shape within the next two years, just in terms of the lack of equity they have in their homes.
Deutsche Bank, one of the more reasonable housing analysts state the following:
"Nearly half of the nation's 52 million mortgage borrowers will have negative equity by the end of the first quarter of 2011, up from the 14 million at the end of this year's first quarter".
This is the same Deutsche Bank that first came out and spoke against sub prime and NY CRE.
With so many of these borrowers underwater or owing more on their home than it's worth, the risk is high that they'll default and their homes will go into foreclosure.
What is negative equity? What are the factors? Its quite complicated and has many moving parts, but the most significant part is the broad and persistent decline in overall home values. Home prices are down down some 12% year over year, and anywhere from 25% to 30% from the peak. Lets forget for the time being homeowners who never had an down payment on their homes, they are already screwed. How about homeowners who put down 20% at the peak? They are pretty much at parity. If you put down $60G or 20% down on a $300K property at the high, and that property is only worth say 240K, well doesn't that mean you lost your entire down payment? This is the quandary that many many prime borrowers are going through at the moment. Forget about sub prime, they are toast! The next biggest casualties are of the "Prime" category. So far there has been really no government program that has gained any traction to help sub prime borrowers stay in their homes. The Loan Mods program is a joke, its just another way for lenders to screw over owners, and with employment so bad, the risk of foreclosure usually hits about 50% of them anyway.
The continued decline of U.S. home prices will contribute to rapidly rising rates of negative equity. This is just a fact. We are no where near the low for mortgage defaults. Of course this is not a problem for homeowners who are gainfully employed, locked in a decent rate, and who are not selling. But for the ones who gut lad off and need to liquidate, that's another story.
The more and more I look, the more foreclosures I see in many major markets around the country.
And we have not even spoken about shadow inventory.
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