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.
To see Laurie Goodman’s entire report from Amherst, go here:
http://multifamilyinvestor.com/exclusive-how-did-she-come-up-with-seven-million/
The problem we’re facing is that it’s now been 13 months (in CA at least) of various foreclosure moratoriums. It begs the quesion: will the PTB ever allow the tsunami of foreclosures to hit?
One theory is that it’s not in the banks’ best interest to foreclose with the current accounting rules. And, if they don’t, then who does? I’m concerned this could linger for a decade
It absolutely could HousingStorm – especially since no politician wants a material second leg on their watch, and the banks simultaneously do not want to book losses.
Unfortunately, a side effect of this is that the most irresponsible buyer who bought a home in 2005 and is now not paying the mortgage often gets to stay for free for potentially years in a house that is more than he can afford, while those of us who were responsible end up in lesser accommodations and paying substantially for them. Can you say moral hazard?
I also find it particularly ironic that the Democrats controlling the House, Senate, and White House, while calling themselves champions of the poor and underprivileged, are fighting hard to keep housing prices elevated to benefit the rich and upper middle class along with their campaign donors, the banks and the NAR, at the clear expense of the bottom 40% who are paying rent and whose rents would fall if housing prices were allowed to correct to the levels they would without government intervention. Champions of the poor indeed.