Dec. 18, 2009: Update on Residential Real Estate Market
For those of you who keep hearing about "green shoots" in the residential real estate market, where "things are getting better," let me point you to the Mortgage Bankers' Association National Delinquency Survey for the third quarter of 2009. Both the delinquency and foreclosure rates broke previous records set during the second quarter of 2009. Mortgages at least one payment past due but not in the process of foreclosure rose to 9.90% while mortgages in the process of foreclosure rose to 4.47%, for a combined past-due rate of 14.41%. This means that more than one in seven mortgages is now delinquent or in foreclosure.
The increases occurred in spite of the fact that the subprime crisis has largely run its course; new delinquencies and foreclosures are driven by prime fixed-rate loans. Prime adjustable-rate mortgages, which include the highly toxic "pick-a-payment" option ARMS, also continued to deteriorate, while subprime fixed and adjustable-rate mortgages both saw improvements.
According to the MBA, "the outlook is that delinquency rates and foreclosure rates will continue to worsen." So much for the obsequious and premature media reports that the "housing market has bottomed and is improving." Not yet. No way. Gonna get worse. A LOT worse.
What does this mean for the economy? In combination with the deterioration in the commercial-real-estate sector and the continuing problems in the labor market and in the financial-services industry, this spells trouble. Look for a "double-dip" recession in 2010--the so-called "W" recovery, or, as I call it, the "O"-shaped recovery. We're going to go 'round-and-'round in circles instead of moving ahead.
And will somebody tell me what is going to happen to the housing market when the Fed, which has purchased virtually all of the mortgages securitized this year and now holds almost $1 trillion in residential mortgage-backed securities--yes, you read right: ONE TRILLION DOLLARS with a capital T--begins to sell off these securities as it tries to stave off a crippling new wave of inflation? Can you say CRASH, with a capital C?
