There are all kinds of "experts" out there who are claiming that the housing market has bottomed, stabilized, halted it’s precipitous drop, etc. So why does Doom remain so "doomish"?
UPDATE (10/4, by jm): The good folks at NY City based Multi-Family Investor report (see comment #1 below) that they’ve got the scoop on the Amherst report in their post "Exclusive: How Did She Come Up with Seven Million?" (9/29).
Back during the boom we complained that all the bullish reports out there constantly considered demand [which apparently was going to grow forever] without considering supply, and supply remains the horsefly in the ointment. Today Barron’s discussed a highly respected report by Amherst Securities Group, and what they report on the shadow inventory of foreclosures is alarming:
The report, dated last Wednesday, festooned with gory detail, focuses on the swollen overhang, the so-called shadow inventory, that has grown inexorably in the wake of the tsunami of default and foreclosure.
Amherst estimates this massive overhang at seven million units. That’s the equivalent of 135% of a full year’s existing-home sales and chillingly greater than the 1.27 million units that made up the overhang in early 2005, when the housing bubble had just begun its dizzying and more than a little lunatic ascent.
Put another way, of the 56 million units that the Mortgage Bankers Association says make up the mortgage universe, Amherst gauges 6.94 million units are in what it dubs the "delinquency pipeline" eventually headed for liquidation. And it reckons that another 300,000 mortgages replenish that unwelcome flow every month.
Essentially, then, this shadow inventory represents a massive furtive supply of future foreclosure. Amherst fingers negative equity as keeping the delinquency pipeline heavily stocked. Quite a reasonable assumption, we think. A home owner, saddled with a house that’s valued at less than it cost him to buy or that he can reasonably expect to sell it for may lack the will and, more importantly, the wherewithal to keep making payments on his mortgage.
While official reports of inventory by the NAR and the NAHB sound hopeful, the real inventory picture is not positive. The foreclosure tsunami and price correction need to run their course before stabilization can happen. The economy needs to stabilize before stabilization can happen. Market based lending on sound principles needs to replace current lending practices by the government before stabilization can happen.
So far, none of this is happening.