Update on the U.S. Residential Housing Market
Lender Processing Services (“LPS”), which processed information on about 70% of all U.S. mortgages, has released their monthly update for May 2010, and the news is not good. After two months of improvements, the U.S. residential mortgage market has resumed its deterioration, with the percentage of delinquent mortgages rising to 9.20%, up from 8.99% in April; while the percentage of mortgages in foreclosure remained stable at 3.18%. Hence, the total percentage of mortgages that are non-current rose from 12.18% to 12.38%. LPS attributes the brief improvement during March and April to seasonal factors related to tax refunds. Now that the tax season has ended, we are seeing that the deterioration in the residential real estate market was just a statistical illusion.
The hardest-hit states as measured by non-current mortgages are Florida (22.4%) and Nevada (21.8%--say goodbye to “Senator” Harry Reid (D-NV) and hello to “Mr.” Harry Reid). Other hard-hit states are Missisippi (16.2%), Georgia (14.8%), Arizona (14.6%), California (13.8%), and Illinois (13.6%). It is no coincidence that most of these states are heavily over-represented among the almost 200 banks that have failed during the past two years, Mississippi being the exception. Florida is suffering through an 11.2% foreclosure rate, far ahead of second place Nevada (7.3%).
More depressing is the observation that the volume of loans rolling into early stages of delinquencies are on the rise, returning to 2009 levels. More than 550,000 mortgages moved from current to 30-60 days past due and another 450,000 moved from 30-60 days past due to 60-90 days past due. New problem loans are concentrated in Arizona, Nevada and Florida.
Cure rates (the percentage of delinquent loans returning to current status) declined in April and May to a six-month low of less than 10%, after several months of improvement reaching a high of almost 30% in March. Overall, 4.1% of loans deteriorated in status while only 1.7% improved.
All in all, the May report paints a dismal picture of a residential housing market that is unlikely to improve until the labor market leads the way. With 16 million workers officially classified as unemployed and another 10 million under-employed, working part-time instead of full time, or having given up looking for a job, we have 16.5% of U.S. workers in financial straits that make it difficult for them to pay their mortgages or even keep food on the table.
Look for the housing market to follow the labor market, and the outlook for the labor market is grim.
