Anyone who owns a home knows that values haven’t improved much at all over the past year. In fact, most surveys shows that housing prices continued to decline once the government’s incentive programs ended in June of 2010. At the heart of the issue is the number of foreclosed homes; an issue that may get worse before it gets better if the current trend of distressed mortgages continues.
One might have expected to see a rebound in home prices by now. After all, the credit crises effectively ended in March 2009, the recession ended in June of 2009, and even the unemployment rate has improved since the crisis ended. In addition, the Federal Reserve embarked on an unprecedented program of bond buying in 2010 in an effort to increase “asset prices” (which is econospeak for stock and housing prices).
Unfortunately though, the efforts by the government and the Fed haven’t done much to help the housing market. This is due largely to the massive amount of homes that banks have foreclosed on since 2007. Instead of dumping the properties on the market all at once in order to get them off their balance sheets, banks have been putting them out on the market a little at a time so as to not depress values further. (This also helps the banks themselves since they have to show the values of foreclosed homes on their books).
The bottom line is that there is still a large backlog of foreclosed homes on bank balance sheets. And if the recent data from the Mortgage Bankers Association is accurate, this backlog could soon grow larger.
In the latest National Delinquency Survey from the MBA, the total number of delinquent mortgages climbed rose 12 basis points (0.12%) to a reading of 8.44%. Mortgages that were 30-days past due climbed 0.11% to 3.46%. And over the past six months, the 30-days past due rate has climbed 0.2% to its highest level in a year.
This is occurring despite the generational low in mortgage rates and the exceptionally high level of home affordability.
However, the current economic environment and the lack of job growth are surely proving to be major headwinds for the recovery in the housing market. The current consensus on Wall Street seems to be that a recession may not be likely within the next year, but neither is a meaningful pickup in economic activity.
What’s perhaps most discouraging about the recent mortgage data is the fact that FHA Loan delinquency rates were up 0.59% in the second quarter of the year. This is an indication that higher-risk mortgage borrowers – those that require the FHA to insure their loans – may be experiencing difficulty.
Given the current environment of fiscal austerity and the slowdown in economic growth, this does not appear to be good news for the housing market. In short, the rise in delinquent mortgages suggests that additional pricing pressures may be on the way for home values.
According to Joseph Kalish, Senior Macro Strategist at Ned Davis Research, the housing market “is still probably two to three years away from clearing out the excess supply.” Thus, the hoped-for return to normalcy for the housing market may still be a long way off.
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They could have taken the trillion dollar stimulous and bought foreclosed houses and bulldozed them :)