Shadow Inventory Of Troubled Mortgages
There is a substantial research piece out by S&P looking at distressed mortgages (better late than never).
You can read the entire piece, but I’ll save you some time and give you the conclusion:
We believe that the recent constriction in the supply of foreclosed homes on the market is a temporary one. Loan modifications and the observed extension of time distressed loans remained as such may simply have delayed the inevitable, creating the demonstrated shadow inventory of troubled loans. Ultimately, the majority of the properties these distressed loans represent will likely have to be liquidated.
Our estimate of $473.4 billion in loans that will eventually need to be liquidated corresponds to approximately 1.75 million individual properties. This number represents almost 50% of the existing homes available for sale as of December 2009
Moreover [this] only accounts for expected defaults for mortgages outstanding in the private securitization market (which makes up less than a third of the total securitization market and less than 5% of the total mortgage market).
While we do not expect all of these distressed properties to liquidate at the same time, the significant percentage of the current supply that these distressed loans represent does reveal the potential future increase in housing supply. An influx of liquidated properties is likely to prompt a decline in prices if unaccompanied by a comparable increase in demand
As discussed earlier today, there are many more foreclosures coming . . .
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Source:
The Shadow Inventory Of Troubled Mortgages Could Undo U.S. Housing Price Gains
Diane Westerback, Brian Grow, Mike P Dougherty
http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245206147429
Shadow Inventory – housing overhang article
http://www.ritholtz.com/blog/wp-content/uploads/2010/02/Shadow-Inventory-housing-overhang-article.pdf
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February 16th, 2010 at 4:17 pm
another beacon screaming out that for those who bought in bubble areas currently underwater should make plans to walk away.
February 16th, 2010 at 4:42 pm
It’s even more disturbing that that. I live in one of the hardest hit areas. The activity that is going on boggles the mind.
From a forum post on trulia…
“I myself can’t understand why some of these homes, which need a ton of work are receiving multiple offers. Do they really think they are going to flip these homes?
Just in the past week the amount of Single family rentals available have spiked. The rental prices are getting competitive; add in the amount of apartments that are vacant. I expect market rental rate to be reduced during the next 18 months. We just don’t have the paying job market.
Personally I feel the banks are holding back on their inventory, and just getting rid of the dogs.
The foreclosure market is alive & well, and will be with us for some time.
BTW in the last week, I have personally walked through 90% of the homes in Mesa that are currently on the Market priced 75K – 125K. Placed a few offers only to be beat by cash buyers.”
I’m personally caught in a trap where the the prices plunged 60% of where they were at the peak. I tried to play it safe by keeping what I owed way under the appriased and tax value, but the price fell so far that still I’m underwater. It’s silly enough that if my house burned to the ground, it would cost more to rebuild than the current fair market value. I need to move, but my only viable choice it seems is to rent and try to recop some of my payment.
Now with all the speculators, rents are dropping dramaticly as well. This is only going to lead to more people pulling a statigic default, and put further pressure downward. I don’t see light at the end of the tunnel.
February 16th, 2010 at 5:02 pm
LSS: sustaining the un-sustainable, is to ‘Dream, the impossible Dream.’
there isn’t enough hopium/soma/instant smile, around, to make this incubus of Insolvency resolve itself into ‘just a Winter’s woolgathering’..
http://www.thefreedictionary.com/incubus
http://www.thefreedictionary.com/dream
February 16th, 2010 at 5:12 pm
That Monty Python punchline seems to fit once again:
“Tis but a flesh wound!”
February 16th, 2010 at 5:37 pm
Chief Tomahawk Says:
February 16th, 2010 at 5:12 pm
That Monty Python punchline seems to fit once again: “Tis but a flesh wound!”
LOL – Here is the full dramatization of the current housing crisis as presented by Monty Python.
http://www.youtube.com/watch?v=41mkI4ozCVU&feature=fvsr
February 16th, 2010 at 5:41 pm
[...] Ritholtz is piping up with his take on the S&P research in his article, “Shadow Inventory of Distressed Mortgages“. Here is an excerpt: We believe that the recent constriction in the supply of foreclosed [...]
February 16th, 2010 at 5:41 pm
Those charts look like they have peaked.
Looks like growth in deliquencies leveled off in Mar 2009, its moved up a bit… but mainly is flatlined.
Nothing new there.
February 16th, 2010 at 5:44 pm
Lets put the #s on the growth rate:
Distressed:
Mar 07 — $100B
Mar 08 — $250B (up 150%!)
Mar 09 — $400B (up 60%!)
Mar 10 — $420B (up 5%)
Hmm… is that bearish? Or might we see -10% with a couple good months?
February 16th, 2010 at 7:21 pm
@bsneath: “We’ll call it a draw.” Still good after all these years! Thanks.
February 16th, 2010 at 7:34 pm
@Chief Tomahawk
“We’ll call it a draw.” Sorta like when I spar with BR, he usually cuts me down to size…
February 16th, 2010 at 7:37 pm
I’m going to start listening to The Chordettes again.
We’ll all be needing a dream soon.
http://www.youtube.com/watch?v=odcJ-vS22rI
February 16th, 2010 at 8:14 pm
I predicted a 20% drop in RRE. Sticking to it.
cognos can fluff all he wants.
Speculators are moving on on some properties in some areas. Flip or rent. They read too much and listen to the wrong people.
It’s all about jobs.
RRE will not move up an inch before that improves dramatically. And now the most likely shift is people falling out of unemployment benefits. WHICH WAS PAYING THE MORTGAGE. HELLO??????
You can read all the BS you want. And be an administration pollyanna (cognos).
But it’s all about jobs… And not just minimum wage jobs.
February 16th, 2010 at 8:20 pm
Damn, where’s that 1.5 grams of soma when you need it?
February 16th, 2010 at 8:54 pm
Simon,
You and I, both..
here: “Early in that year Archie Bleyer, musical director for Godfrey, started his own record company called Cadence (it could have been dubbed Julius LaRosa Records since the first eight releases were all by the Brooklyn-born singer). The tenth single, in April 1954, was by The Chordettes as Bleyer felt there was room on records for another Andrews or McGuire Sisters. The girls’ first release, “It’s You, It’s You I Love,’ went nowhere, but their second single, a lilting pop lullaby titled “Mister Sandman,” took off (helped by TV exposure) and went all the wan to number one in the U.S. and to number 11 in England. With seven weeks at the top and 20 weeks on Billboard’s Best Seller chart, “Mister Sandman” and The Chordettes were on top of the recording world. It was all the more embarrassing when their next two singles failed to chart at all; it wasn’t until January 1956 that another Chordettes recording, “The Wedding,” hit the top 100, though it quickly dropped from the list. It was during this drought that The Chordettes decided to take the rout of other white pop artists on the early ‘50s: when all else failed, cover a black artist’s song and ride it up the chart. Thus The Teen Queens’ “Eddie My Love” became The Chordettes’ first top 20 record in two years…”
http://www.vocalgroup.org/inductees/the_chordettes.html
fitting that they found the HOF, in their field, just like Mariano will..
~~
zot23,
it should be available–purchasable w. your HSA-linked debit card–OTC @ CVS..
http://www.hsainsider.com/
http://acronyms.thefreedictionary.com/otc
http://www.cvs.com/CVSApp/user/home/home.jsp
note: not a recommendation of CVS, as a matter of fact, after looking at their website, it became, even more, apparent why our ‘Health-Care’ Industrial Complex is so detrimental to out well-being..
February 16th, 2010 at 11:55 pm
I’m in a TIC investment… a luxury apartment in Phoenix. Phoenix is getting hammered by the shadow market. Investors buying apartments for cash are lowering their rents to have full occupancy (they don’t have any debt to service). Apartment tenants are moving out and buying homes… “why pay $1500/month apartment rent when I can own a condo for $1,100/month?”
I don’t know if this TIC can stay afloat over the next few years. The shadow market and all the inventory will need to be eaten up before the TIC luxury apartment can be stabilized. Yet there are another 4-5M foreclosures coming over the next few years to add to the inventory glut and drive prices down.
Not easy to get out of a TIC. Future doesn’t look good and if I could get out I would.
Any suggestions, feedback, advice, past experiences, etc?
February 17th, 2010 at 1:01 am
[...] by Charles II on February 17, 2010 Barry Ritholtz reproduces a chart from S&P that shows the magnitude of the mortgage problem. Basically, the Fed [...]
February 17th, 2010 at 1:52 am
Congos: The REOs have peaked in that chart. The seriously delinquents appear to be nearing a peak, but we don’t know that yet. Once they banks decide to foreclose on the seriously delinquent the REOs will reach new peaks. That’s what the shadow inventory is all about and that is why many still say that California has a long way to fall. It all depends where you live. Areas where sub-primes were heavy, like Riverside, have come back in-line with historical loan/gross income 3:1 ratios. Areas like Orange county, where alt-arm and other exotic loans ruled have not fallen far enough to meet those historical trends due to the fact that these loans have not yet recast into fully amortized loans and the “owners” are living in a fantasy until they do.
February 17th, 2010 at 9:11 am
Congos is back with his/her myopic lens – See what you want in the chart, the reality paints a much different picture than “we have peaked” and “nothing new.” Please share the peyote next time!
February 17th, 2010 at 11:00 am
The house next to me is owned by a guy that worked for Shaw Carpet. He got a 30% pay cut signed by Warren Buffet. He had a rental and that renter moved out so he left his house and moved into his rental. He hasn’t made a payment for a year and a half. It was for sale for about a year. Now ther eis no for sale sign. The bank won’t foreclose due to homeowner association fees and yard maintenance. The gas was shut off long before winter and it has been dow to 10 degrees here in Atlanta. He says the bank is working with them on a short sale.
This house is not being paid for and is not being counted in any statistics except maybe a non-performing loan. But everything is better.
February 17th, 2010 at 1:18 pm
[...] Here is Barry’s post: http://www.ritholtz.com/blog/2010/02/shadow-inventory-of-troubled-mortgages/ [...]
February 17th, 2010 at 4:41 pm
$473B/1.75MM = ~$270k average burnt loan. I’d figure the average burnt loan to be around $450k, which would correspond to ~1MM shadow inventory. But, somehow, I don’t think the 1.75M number is far off.
February 17th, 2010 at 4:53 pm
[...] reading through the Big Picture, I found this discussion of the shadow inventory of houses in the US. This theme, that there exists a largely uncounted collection of homes which would normally be [...]