I took a bit of heat last month for writing a post titled “A Giddy Delinquency”, where I called out the housing market hysteria for what it is- breathless “buy now” sales rhetoric backed up with very little statistical proof as to why you should do so. It’s not that I don’t think you should be buying real estate, it’s just that I don’t think you should be buying just any old real estate unless of course, you choose to do so. I certainly don’t think you should listen to those Realtors who have been trying to coerce you into buying by touting a do nothing “expiring” tax credit and cherry picking reports on the national market that illustrate market strength. What good is a Realtor if they want you to buy everything and anything? What good is a Realtor who can only be reactionary to market trends? I don’t know either.
The Mortgage Bankers Association provided the public with their quarterly review yesterday, and the details of that report aren’t exactly sunny. Their new study finds that one out of seven homeowners are either delinquent on their mortgage, or already in foreclosure. A full ten per cent of homeowners are delinquent on their notes right now, up from seven per cent from the same quarter in 2008. This is, in short, horrible news for the housing market as a whole, but more specifically for the primary housing market. Job loss combined with negative equity is the culprit here, and as long as these delinquencies continue to rise or remain stable, the market as a whole cannot improve. Sure there can be fits and starts showing positive news one quarter and negative news the next, but this sort of activity goes hand in hand with the very simple to understand bottom trough theory that I’ve been talking about for the past year.
I’ve been calling this real estate market quite accurately this year, and have been leaps and bounds ahead of the national media in reporting the trends. The New York times writes about mortgage delinquencies increasing per the MBA report, but I told you the delinquencies were going to be trouble a few weeks ago when I read the under publicized, less sexy FHA report. I didn’t think loan modifications would work to relieve foreclosures, simply because interest rates aren’t causing homeowners to default- owing $400k on a home that’s worth $250k is the foreclosure catalyst. The delinquencies are the problem here, and unfortunately they continue to rise. I hate to have to toot my own horn, (oh fine, I don’t) but I’ve been forecasting these reports long before the op-ed pieces around the country find ink to print them. Speaking of, If you know someone who might be interested in know where the markets are heading, and what factors are really standing in the way of a lasting recovery, I’d be thrilled if you’d send them a link to my blog.
The national market needs a increase in employment before these delinquencies stabilize, and unfortunately, the government is too busy trying to cram a job destroying health care bill down our throats. Oh, and once that healthcare crap is either defeated (which, unfortunately, it won’t be), or passed in some form (which, unfortunately, it will be), we then get to deal with Cap and Trade by the disturbing Henry Waxman. Cap and Trade is a confirmed, self confessed job killer, but Rahm and friends are narrowly focused on not “letting a good crisis go to waste”. Where is the job growth you ask? It’s nowhere in sight, because the administration hasn’t a clue how to aid small business. Instead of providing tax credits, let’s just fine them if they can’t provide their workforce with health insurance. Buck up people, waiting 3 months for a biopsy like they do in Canada isn’t so bad. After all, it might be benign.
Without job growth, delinquencies will continue, and the real estate market will be stuck in a quagmire. The secondary home market is indeed different, as job loss doesn’t significantly affect the vacation home market like it does the primary home market. The reason being is that most people who are buying vacation homes are comfortable in their finances and their position in life, and they’re generally secure in their jobs. Primary markets? Completely and utterly reliant on a healthy job market, and nothing good can come in the primary market as long as unemployment remains this high. Ben Bernanke has said that the Fed is going to begin pulling back the government support of the housing market in terms of keeping interest rates low. As much as I dislike government intervention, the worst thing Ben can do is start pulling back support when it’s obvious the housing market is going to need all the help it can get for at least the next 12-18 months.
The delinquency rate being so high does have another possible explanation. Many loan modification programs, you know, those programs that don’t work, actually require the borrower to be delinquent on their notes before they qualify for the loan modification. Think about that scenario for a minute. A troubled homeowner, struggling to make monthly payments, skips a couple payments in the hopes of then qualifying for a loan modification. They apply for the loan modification, and for one reason or another, are turned down. At that point, they’ve already accrued additional penalties and interest, and are now expected to get current on the loan to avoid foreclosure. They’ve dug a hole that many people without cash reserves simply cannot dig themselves out of. The loan modification, touted as the solution by our increasingly aloof and misguided president, actually helps push homeowners into foreclosure. You read it here first, now expect to read it somewhere else in the next month.
Just remember, as long as the delinquency rate is rising, no lasting recovery in prices can be acheived. Sure we can attain a volume correction, as low prices will always encourage people to buy. But these signs of a rebound in pricing, these forecasts of a rebound in pricing by Larry Yun and nearly every shrieking Realtor in the country are ignorantly premature. Watch the foreclosure rate. Watch the delinquency rate. Watch them both and you’ll be able to gauge the health of the market as well as anyone. On that note, our friends at foreclosurenet provide foreclosure information on a county by county basis, listing all foreclosed property that is currently on the market (info is probably a bit stale, and not up to the day accurate). The Walworth County foreclosure total according to foreclosurenet? 71. Berrien County, home of all those wind lashed Harbors? 203. You don’t have to be an economist to figure out which county is home to the stronger, more stable market.
If you’re shopping for a primary home, be wary, but know that there are deals out there even as the delinquency rate rises. If you’re a vacation home buyer, be wary indeed, but know that the time of year and confidence of sellers is more important to your future deal than this now famous, newly rotund delinquency rate.