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For those talking about a recovery in home prices, Barry Ritholtz CEO of Fusion IQ points to a rising number of foreclosure filings. In a Washington Post column, Ritholtz writes that rising number of foreclosures and credit availability are preventing an immediate housing recovery:
“To give you an idea of what is in store, consider this amazing statistic, courtesy of Laurie Goodman, housing analyst at Amherst Securities: 2.8 million Americans are 12 months or more behind on their mortgages. That degree of delinquency leads to an overwhelming percentage of foreclosure starts. It is reasonable to expect that 95 per cent of these will end up as a foreclosure, distressed sale or walkaway.
As you might imagine, Goodman is not expecting a quick housing turnaround. An “L”-shape recovery is the most likely outcome, she says. Home prices still have 3 to 5 per cent more downside. And, Goodman notes, they are likely to stay flat for three to five more years.
Credit availability is another factor holding housing activity down. In a May 30 research report, Goodman analysed the credit scores of existing homeowners. “Since 2007, 19 per cent of all borrowers (about 9 million mortgagees) have gone more than 90 days delinquent on their mortgages, or have had their mortgage liquidated,” she wrote. “Based on this delinquency alone, nearly all of these borrowers would be unable to qualify for credit today.
Why does this matter? Consider what removing one in five people who qualified for a mortgage not too long ago does to the demand side of the housing market. The 90-day delinquency on their credit reports prevents them from qualifying for a mortgage. Removing those people as potential home buyers amounts to a huge reduction in demand.”
Along with the rising number of foreclosures, most potential buyer no longer qualify for loans at current standards, all of which means an imminent housing recovery is unlikely.
Read the entire piece at The Washington Post >