Clobbered bears are now clinging to three real-estate theories that will bring the economy down:
- Commercial real-estate collapse (worst-kept secret ever)
- Option ARM reset armageddon (some analysts think the chart that scares the hell out of everyone here is misleading and out of date)
- A delayed wave of foreclosures, thanks to mortgage mods and banks trying not to dump properties at the bottom.
Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market.
The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market.
The trouble, of course, is that it’s really hard to get a handle on exactly how many foreclosures are “delayed.” The WSJ gives it the old college try:
As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyses mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages
Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.
So call it about 3 million houses at risk. Owners will catch up on payments on some of these. Others will be sold as short sales. So maybe call it 2-2.5 million.
Meanwhile, even bearish analysts agree that the low end of the real-estate market (where many foreclosures are) is likely stabilizing. So buyers will snap up more of these houses than they would have a year ago.
Will 2-2.5 million “delayed” foreclosures crush the housing market? Well, they won’t help prices rise, certainly. But as long as they don’t hit the market all at once–which, from the time-spans described above, doesn’t seem likely–they probably won’t be a devastating “wave,” either.
Read the whole WSJ article >