Despite countless monies spent by government to manipulate the housing market upward, [Mar 5, 2009: WSJ - Mortgage Bailout to Aid 1 in 9 Homeowners] we have reached a new threshold in our recovery.... for the first time the number of homes in delinquent status + foreclosures is GREATER than the number of homes for sale.
As we wrote often in 2007 and 2008 this would be a 2 step housing bust. The first bust was a once in a lifetime (we hope) stupid mortgage disaster that began in subprime and moved up the food chain to Alt A loans [March 19, 2008: Alt A Mortgages Beginning to Break Down] , interest only loans, and the most evil of them all.... option ARM loans. [Aug 13, 2008: Option ARMs- Who Thought Up these Time Bombs?] These are the loans that the government is spending money left and right to mitigate... people who bought way too much house and were tricked into these loans now deserve tax money to get them into a sensible loan. Many of those folk are currently in trial programs, but we've seen in the past more that half of the modifications just kick the can down the road [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble] and eventually the mortgage goes into foreclosure. It just delays the inevitable and has wasted a ton of money by taxpayers on a solution that does not even work half the time.
The second step of this bust is what a traditional housing drop looks like... when people lose jobs in a recession, they can't make payments and the house goes into foreclosure. That has usually been a regional situation in the US rather than a national situation but this recession recovery is so vast and broad it is hitting people everywhere. And this is the prime loan area that is now taking big hits. All prime loans mean (to me) are people with good FICO scores. Good FICO scores mean nothing when you lose your employment... you can have the will, but not the way to make a mortgage payment.
I cannot stress enough how a mortgage bust is supposed to be a lagging indicator in an economic downturn - it traditionally happens mid to late cycle in a recession - due to job loss. But thanks to the financial innovation and daytrading home culture (no one is blameless) this is the first recession that was LED by a housing bust. Now that's innovative!
One more kicker - I have long said this will be a 2 part bust, the first of its kind. I might be wrong there - because we are in the eye of the storm on many option ARM and interest only mortgages. Maybe we will get to not only experience the first 2 part national housing bust, but a 3 parter. [Nov 4, 2009: Whitney Tilson T2 Partners October 2009 Investor Letter; Housing Recovery Still Has Long Way to go]
- US mortgage delinquency rates and the percentage of loans that entered the foreclosure process jumped in the third quarter, with both reaching record highs, the Mortgage Bankers Association said on Thursday.
- The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from 9.24 percent in the second quarter and up 265 basis points from 6.99 percent one year ago, the MBA said in its National Delinquency Survey.
- The delinquency rate broke the record set last quarter. The records are based on MBA data dating back to 1972.
- The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.
So we have 9.64% of all homes in some sort of delinquency.
- The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from 4.30 percent the second quarter of 2009 and 150 basis points from 2.97 percent one year ago.
And then we can add another 4.47% for foreclosures. Hence a combined 14.11% of mortgages in various stages of distress despite the actions that have moved many borrowers out of these categories via workouts. Without those actions the free market would of created an even larger swathe of loans in either situation.
Now the truly remarkable stat:
The number of loans 90 days or more past due + foreclosures is over 4 million.
The number of new or existing homes for sales is 3.9 million.
It all comes back to jobs in the end... without jobs there is no solution.
Oops, I'm sorry - there is still the ultimate solution. [Jul 15, 2009: Reuters - Obama Mulls Rental Option for Homeowners, along with Paying Mortgages for Unemployed] We've already seen the rental option unleashed 2 weeks ago... only 1 last solution left to go.