My Washington Post column got rolled over until next week (caused by a few snafus on my side and theirs). There are some fascinating details within the column, and since it won’t be published for a few days, I wanted to share them with you. Here is an early look:

Foreclosure Details

-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.

-Distressed home sales, which include both foreclosures and short sales, had fallen substantially. They were down to 28% for April 2012 – significantly less than the 37% in April 2011.

-Distressed sales tend to be about 20% less than non-distressed sales.

With that as a background, I spoke with ace housing analyst Laurie Goodman of Amherst Securities. Goodman dazzled me with several astonishing statistics.

Let’s briefly look at two of these:

1) 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:

2) “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 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 a huge reduction in demand.

Its not a surprise that Goodman is not expecting a quick housing recovery. She notes an “L” shaped recovery is the most likely outcome. In hr opinion, Home prices have 3-5% more price downside. The, and are likely to stay flat for another 3-5 years to come.

Category: Credit, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Fascinating Mortgage & Housing Data Points”

  1. Winston Munn says:

    L-shaped recovery is an oxymoron, isn’t it?

  2. Moopheus says:

    “about 9 million current homeowners — would be unable to qualify for bank loan today. That is 9 million potential home buyers who are effectively barred from the market due to their credit scores.”

    That doesn’t necessarily follow. Not all current owners are potential buyers, at least on the time scale of a few years. You can’t just make the assumption that everyone is planning on buying another house in a short period of time. I know I personally hope I never have to go through that again.

  3. Chief Tomahawk says:

    Prices in Chicago are getting drilled.

  4. Bam_Man says:

    Anyone talking about a “housing recovery” when the economy is producing 69,000 $9.00/hour McJobs on a net monthly basis is in serious need of psychiatric help. Probably a lobotomy.

  5. Expat says:

    Bam-Man is correct. We have been hearing the same bullshit for four years. “Bottom is here/near.” “Prices rising in X city.” “X to price ratio indicates houses are cheap and will rise.”

    It’s Lereah everywhere we look. It’s Cramer on Acid. It’s Bartiromo and bullish every fucking stock ever issued. It’s a joke.

    Pick and choose your city, town, or region. Cherry pick your formula or ratio. Make up data or ignore most of it. Lie, lie, lie.

    Housing sucks. True unemployment is a disaster. Borrowing conditions are realistic. Banks are, well, bankrupt. Housing stock is unlimited. Interest rates are obviously going only one way from here.

    Median household income continues to drop as this “recovery” drags on. We are now around $48k. And the GODS demand balance in the universe. We will mean-revert to historical price-income ratios. We had 6-7 times income, we will have 2.5 times income.

    Median household income is going to drop to $45k. The price-income ratio will hit 2.5. The median national house price will drop to 115k. Do the math, calculate the percentage left.

    Or keep swigging the Kool-Aid and pretending that 90% of Americans own lots of those awesome equities which are rallying!

    Doomed! Doomed, I say! Bwahh, ha, ha, haaaaaa!

  6. holulu says:

    Also consider that new wave of “home buyer wanta be” are not going to qualify for mortgages because they have been delinquent with their student loans.

  7. wngoju says:

    “The, and are likely to stay flat for another 3-5 years to come.”

    This is frightening. That whose name must not be mentioned…

  8. 873450 says:

    ” 2.8 million Americans are 12 months or more behind on their mortgages.” [6% of all borrowers]

    “19% of all borrowers (~9 million borrowers) have gone >90 days delinquent on their mortgages, or have had their mortgage liquidated.”

    The article counts 11.8 million Americans, or 25% of all borrowers, delinquent on mortgage payments 90 days or more. Many, many millions more under-employed middle class Americans earning less income (Permanently?) stretch to make timely payments on mortgages exceeding the value of their homes. They can’t refinance. They can’t sell. They are living in a trap that only benefits the bailed out lenders and investors they were forced, without consent, to rescue. Every mortgage program “intended” to provide them relief failed miserably.
    “L” shaped recovery? 3-5% more price downside? 3-5 more years? These millions of Americans have been standing on cliff’s edge looking into the abyss for several years, already living in austerity, scratching and clawing, barely holding on, “scared” they will lose their jobs and healthcare coverage today. Absent a true economic recovery reaching 99% in the near future, it will not be long before their remaining financial reserves are exhausted and millions more mortgage loans fall into distress.

    (already posted, but more appropriate here)
    Americans Hang on After Recession Claims Wealth

    After financial crisis takes away 40% of their wealth middle class Americans earning less income struggle to keep out of poverty and hold onto what they have left.

  9. S Brennan says:

    Unemployment, it’s not just your neighbors problem…it’s yours.

    Remember when Obama said he could not find work needing to be done in this nation? Did he turn to the audience…use a lifeline? No, he just ignored the problem.

    Obama, with a majority in both house and senate…proposed no jobs program. Instead, we get a worthless right wing “health bill” designed by the Heritage Ministry of Propaganda [circa 1998] which forces working poor to buy worthless high deductible insurance. ObamaCare conveniently ignores what every sentient person knows, most medical bankruptcies are from people who are “under-insured” not un-insured.

    I’m sure Romney will suck too, but the last time we had Obama’s level of idiocy in the White House…well…you’d have to go all the way back to when Bush [the 2nd] was in office.

    The Bush/Obama administration…worst single administration ever. Forget the lessor of two evils and concentrate instead on who is the most effective evil…here I’ll give the nod to Obama, he enshrined Bush’s bad policies into the law of the land.

  10. louis says:

    I wonder if TARP had included provisions to deal with this OBVIOUS problem we would actually be on the road to recovery in this vital securitization sector? If they had rolled out your plan BR where do you think we would be on the shadow inventory?

    The tentacles of circumstance are long on this one.

  11. S Brennan says:

    873450, good article…were Barry’s band of financial “fundamentalist” moralizing to the masses that this worldwide recession is all the fault of the little people getting so uppity as to think the American Dream included them.

  12. S Brennan says:

    Must proof read…”were Barry’s band” should have been “where are Barry’s band”

  13. super_trooper says:

    I love number’s too, but what do they mean??
    ” 2.8 million Americans are 12 months or more behind on their mortgages.” From your post I have no idea if this is historically low or high. And most importantly, what the trend is. This relates to all your numbers.
    “Its not a surprise that Goodman is not expecting a quick housing recovery.”
    This goes under ” Not sh!t, Einstrein”, who is???? We’re 5 years into this Sh!t. I doubt that even NRA is expecting a “quick” recovery.
    Two things to take into consideration are “Dude, where’s the inventory” and rental prices going up. Those factors may suggest that it’s mroe likely to be a 3 rather than 5 years until prices will start going up. Of course this should all be done regionally. NV, FL and southern CA are very different. Again, why not that a look at previous housing booms. Contrast Sweden’s in the beginning of the 90′s and how about Japan…..(let’s not get depressed and compare to Japan).

  14. S Brennan says:

    Sorry folks…ignore the 1st link…just the 2nd link above…the first is just Biden’s kid following his father’s predilection for inserting his foot in mouth.

  15. dougc says:

    Assuming a static situation the analysis is reasonable.
    How would a recession next year affect the market? or
    Romney is elected and Voodoo II results in 5 % real GDP growth, the unemployment rate falls to 1 %, the budget is balanced and we run a positive trade balance? or
    An economic messiah leads us to nirvana?

    The future is unknowable and the past is debatable

  16. SecondLook says:

    Super_trooper asked what does those numbers mean in historical context.

    I went over the Federal Reserve database to poke around on delinquency rates as reported by banks. They are showing, as of the first quarter of 2012, a 10.18% rate for residential mortgages (loans secured by one- to four-family properties, including home equity lines of credit). The “normal” rate from 1991 to the end of 2007 was between 1.5 and 3%.

    Note: the rate is for all mortgage loans more than 30 days due.

    On the other hand, that’s below the reported high rate of 2010 when it was 11.2%. From the number supplied by the FRS, banks are past the peak of delinquencies, but still at very elevated levels.

    Now this data doesn’t include non-banking mortgage lenders, which almost certainly have worse rates.

    For what it’s worth, I’m in the peak home price camp – that is, I doubt we’ll ever see home prices – once you’ve adjusted for inflation, matching their historical highs (in aggregate of course, local conditions will vary considerably).
    Now, isn’t that a cheery thought…

  17. BennyProfane says:

    #3: Refer back to #1, and, stop there. That’s your tipping point.

  18. Iamthe50percent says:

    873450 said you can’t refi if you are underwater. Not true. The HARP program only requires that you:
    1: Are employed (income immaterial)
    2. Not involved in a lawsuit
    3. Underwater is OK, home value immaterial, no appraisals
    4. Have no late payments on your mortgage for the last three years
    5. Have a current mortgage with Fannie Mae

    I’m doing a HARP refi right now, although my LTV is 70%. They approached me, obviously attracted to that LTV, but it underwater is supposed to be OK.

    Wish government would extend this to everybody, not just existing Fannie Mae mortgages.

    4.25%, 4.25% APR, no closing costs.

  19. philipat says:

    Looking at the Credit Suisse chart which plotted resets etc from 2007 onwards (And which has been dead right in projecting foreclosures other than the temporary robosigning hiatus) shows a final wave of ARM resets during July/August 2012. This should be the final wave of new foreclosures, after which it becomes simply a case of consuming the available invesntory, including the shadow inventory. Perhaps 3-4 years?

    Meanwhile, investors from overseas are not being enticed because these investors are accustomed to taking possession of a physical paper title deed!!

  20. louis says:

    That’s great if you have a Fannie loan. I guess Dick Fuld didn’t have enough Fannies?

  21. S Brennan says:

    Iamthe50percent, I am happy for you…but read your list…now put yourself in somebody elses shoes.

    The list knocks out almost 85-95% of those who need help.

    Iamthe50percent, I am happy for you…but

  22. twd000 says:

    This current lack of inventory in some markets got me thinking. What percentage of mortgage-backed-securities are owned or explicitly guaranteed by the US government? I thought I recall a number like 80% thrown out there . What is the incentive to liquidate/realize losses, as long as the fed can borrow at 1.5%? If private banks, pension funds, etc held non-performing loans (with no govt backstop) they would be much more motivated to cure the defaults or else go under themselves. Are we entering a stalemate period of the market?

  23. [...] You’re expecting something about Greece. Fair enough. But first, consider these eye-opening stats (via Barry Ritholtz): [...]

  24. darkstar says:

    I hate to quote him, but when that guy who was almost Vice President spoke about “two Americas,” well, there’s not a more accurate description of the housing market. For example, prices in brownstone Brooklyn are up 50% in the last couple of years. And they never really went down. Meanwhile, over in southern Marin County, there’s very low inventory, rental prices are going through the roof, and prices are up 20% in the last 6 months. It’s a great time to be a 1 per-center (or a 5 per-center perhaps)…

  25. JasonPappas says:

    That leaves two options:
    1) Bring back subprime
    2) Encourage investment in rental properties

  26. Jim67545 says:

    A while back I pointed out here that damage to credit records was a major product of the housing bust with far reaching dampening effects.

    First, the stats here spoke to those CURRENTLY delinquent. But we by now have millions who have been foreclosed or such and millions more who have been modified back to a current state but which were seriously delinquent. These periods of serious delinquency stay on one’s credit report for 7 years and even with subsequent positive credit will darken their credit score for years. I suspect many are unable to obtain and re-establish positive credit trade lines.

    A poor credit record tends to be viewed as a form of moral weakness and/or indicative of some sort of profound problem (addictions, health problems, irresponsibility, laziness, etc.) that one cannot necessarily identify. Consequently many employers pull credit reports – especially where money handling or pilfering is possible. Landlords pull credit reports. It is used by insurers. It certainly affects the interest rate charged on consumer debt and the availability of revolving (credit card) and other consumer and especially small business credit.

    The bottom line is we have created a large pool of credit-handicapped Americans through this bust and perhaps funamentally changed the way Americans obtain and repay credit. I am unaware what, if anything, is being done to address this credit history problem.

  27. poakland says:

    “2.8 million Americans are 12 months or more behind on their mortgages”

    Below this quote, it states 2.8 million homes. Could we get some clarity? Homes or Americans? Single family or multi-family. FIrst and/or second mortgage. The 2.8 million Americans is alarmist and unlike a typical Barry post.


    BR: The data comes from Laurie Goodman — In this context, the terms “homes” and “mortgages” and “Americans” are used interchangeably

  28. flocktard says:

    As far as bringing back subprime we’re not there yet. But it will return.

    However, No Income Check loans are coming back, and that is good news. If underwritten properly, they’re not toxic.

  29. [...] historical averages remain well below trend. But it actually may be worse than that. Barry Ritholtz talked with Laurie Goodman of Amherst Securities for an upcoming column, and got some pretty fascinating results. By way of [...]

  30. socalguy says:

    Dear Barry,

    Why haven’t you written about Fannie Mae’s appalling new program to sell their portfolio of foreclosed homes to giant private equity funds?

    This has to be the biggest slap in the face to America yet. The bankers who got us all into this mess are now buying homes at fire sales prices and turning former owners into a semi-permanent class of renters.


    BR: Add it to the list of 10,000 I haven’t gotten to yet

  31. Just to add some context to the cherry-picking by the McDoomers this weekend, foreclosure stock plus mtgs 30-days or more in arrears included 1.5 million homes in Y2k, rose to a peak of 6.4 homes in Dec/2009 and is 5.1 million (and declining) today. Whether the category observed is 30-days, 60-days or 90-days … all are were in moderate decline thru 2010 & 2011. Actual foreclosure stock has declined from 2.1 million homes to 1.9 over the same Dec/2009 to Mar/2012 period. Historically (pre-2007), foreclosure stock averages only 300,000 homes.

    As such, I have high confidence the bottom in both New Homes & Existing Home price has been in for some time…

    Realty Bubble Monitor: