Click to enlarge:



David Wilson of Bloomberg takes a crack at the Housing turnaround story:

Persistently high foreclosure rates show the U.S. housing industry is “bouncing along the bottom” even though sale prices are recovering.

The chart above, via strategist Pierre Lapointe of Brockhouse & Cooper, shows the percentage of foreclosed home loans little changed from the 4.3% average for 2009. (Data source: Mortgage Bankers Association).

A spate of recent positive data following the usual seasonal pattern continues to give false hope to homeowners, banks and REO buyers. The front page of the NYT today was the latest to declare the recovery was at hand.

The problem is that the Banks had voluntarily stopped their foreclosures while negotiating the robo-signing settlement. They are now poised “to flood the market with foreclosed homes.” Their distressed sales are likely to pressure prices.

A meaningful and sustained increase in house prices is still several years away. In other words, it is still too early to get excited.”



Foreclosures Loom as U.S. House-Price Obstacle: Chart of the Day
David Wilson
Bloomberg, June 28,2012

Category: Foreclosures, 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.

13 Responses to “Looming Foreclosures = House-Price Obstacle”

  1. Frwip says:

    Another factor holding down the RE market: There are no realistic prospects of quick asset appreciation.

    It doesn’t just mean no more (or fewer) leveraged flippers to drive prices up.

    It also forces buyers to assess their purchase more realistically and makes the purchase decision a lot harder. You can’t go shop around on impulse telling yourself “Never mind if it turns out a mistake. We’ll more than recoup our expenses selling it back”.

  2. rocketgas says:

    seems like a lot of pea soup still need to get digested

  3. SecondLook says:

    Just a quick observation:

    Assuming that when housing starts to appreciate again (on a national basis), using the long term historical averages of between 3.4 and 5.4% (depending on which time frame and data set is regarded), it will take anywhere from 5 to 12 years before that house is back to the original price. Adjust for inflation (purchasing power of money does matter), and you can add perhaps another 5 to 10 years.

    Sobering, isn’t it. Even if there is a significant housing recovery, it may take up to two decades before housing is back to its highs. For those homeowners that purchased during the middle of the 2000′s, well, unless they plan to stay the life of their mortgages, they are likely sell their property at a loss; a smaller one than now, but still a loss.

    I can make an argument that the basic assumption of eventual, meaningful, recovery is flawed – that we’re on the downward slope of Peak Home Prices, but that is another story.

  4. Bob A says:

    Ongoing reductions in inventory of completed new homes and condos may offset new foreclosures by some degree.

  5. DeDude says:

    I have seen lots of good arguments and solid data in support of the idea that housing (both prices and sales) will have a very slow recovery. But to actually have additional fall in prices and/or sales you have to either have something drastically increasing supply or reducing the numbers of buyers. On the buying side I see an increase in investors as the title issues are solved and rental market is tightening. I don’t see anything that would drastically reduce the number of regular buyers below where it is now. I understand the argument that banks would increase their foreclosures with all the legal issues resolved, but in order for that to cause a fall in prices they would have to also be willing to sell those REO’s at even lower prices than the ones they are currently holding (because they cannot get a good enough price). Even the data above does not show any increase in new foreclosures and it show a rather solid reduction in >90 day past due mortgages. If banks were drowning in properties and they actually could afford to take the loss associated with disposal of those properties I might accept the idea of a real drop in prices, but to me the data suggest a very slow increase in prices and sales.

  6. Frwip says:


    Yes. A long hard slog through the muck.

    Price stabilization? Plausible, at least in nominal terms. Recovery? Not so much.

    Second derivatives DO matter.

  7. Frwip says:


    ” I don’t see anything that would drastically reduce the number of regular buyers below where it is now. ”

    As you take the long term view. Mmm, mmm, leh me see. Baby boomers starting to keel over ?

    And regarding REO, sure. Banks can hang on their inventory for as long as … they can finance that inventory.

    Right now, it’s extremely cheap. But, there may be a little surprise in the offing on that specific sector if we have a somewhat convincing economic recovery. You would have more buyers, more household formations, but the Fed would also start to crank up the rates and banks would be rushing for the exits with whatever REOs they have left.

  8. AlaskanPete says:

    “The problem is that the Banks had voluntarily stopped their foreclosures ”

    Uh…your chart doesn’t exactly support that statement. There is no sharp dip in “new forclosures”, which is what you would expect if they had “stopped”.

    As for “Baby boomers starting to keel over “…boomers that would ever be expected to own a home already do. They would not account for any net new buyers anyway as they would also be sellers. They may liquidate second homes/vacation properties as they need money in retirement and add to inventory, but they aren’t by any stretch a “regular buyer”, which is coming from new household formation, first time homebuyers, etc…i.e. Gen X, Gen Y.

  9. bear_in_mind says:

    I can tell you folks that I’ve lived through a couple regional boom-busts in Silicon Valley and it’ll take a lot longer than anyone forecasts or wishes for this market to return to “normal.” The 1988-’90 boom took 6-7 years to return to break-even for median prices and that bubble was NOTHING in comparison to this carnage.

    Even though Silicon Valley and SF has worked-off a lot of the excess inventory in this maelstrom, there’s a TON of people sitting on negative equity. These folks can only hold-on for so long before their career, family situation, health or age require a transaction to occur, and when that happens, it’s liable to result in a negative comp (i.e. seller has zero leverage = below market sales) and will contribute to the negative feedback loop. Granted, this is nothing like the free-fall experienced from ’07-’10, but it’s another real drag that will factor into returning RE to normalcy.

    And lastly, the “equity” which sellers traditionally used for move-up sales has likewise vaporized, and that, too, will be a hindrance to the market returning to zero-gravity status.

    Patience, grasshopper, patience…

  10. kek says:

    it’s not 2008, banks do not need to flood the market. With prices ticking up, buyers are noticing. In Phoenix, another 700+ lots were released today for new home construction. Investors are swarming to buy distressed properties in bulk.

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