Thursday, June 05, 2008
Almost The Only Stat We Need To Know
The Mortgage Bankers Association came out with their quarterly summary. Those who are claiming that the housing market is bottoming or is about to bottom are utterly refuted by this one statistic:
The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest since 1979, the Washington-based trade group said.Obviously delinquencies (as do all these stats) roll. To have a >6% delinquency rate implies that forced sales will constitute the bulk of the inventory on the market this year. Remember that delinquencies are counted per loan, and many delinquent homeowners will have more than one loan, so the number of homes involved is lower. Still, more delinquencies will occur as the year wears on - at least another three percent. We seem to be sticking at about a 1/3rd first workout rate, and in this situation, probably 50% of those will go bad again. I make it about 6% forced sales on inventory, including those stuck new homes. Of course this is quite unevenly distributed, so some markets are relatively good even as others are crashing with no bottom in sight. But with every month that passes, the impacted areas widen.
Figure total housing stock of 1000 homes. Normally we'd expect somewhere around 60 of these to come on the market.
10 (1%) are vacant now and need to be sold but are not mortgaged (estate sales and the like). Out of that 1000 homes about 30% have no mortgages. So 700 homes are left. In that universe of 700 mortgaged homes, 6.35% of mortgages are delinquent. 6.35% is about 45 homes. However when a person goes delinquent on one mortgage, they are far more likely to go delinquent on another. I'm going to say that about 35 of those homes represents an equivalent home delinquency rate. Some of these (about 1/3rd) will get workouts. We'll say 12, which leaves us 23 homes. But of those 12, probably about 6 will roll back into delinquency within a year. We'll expect 3 of them this year. Add 1 for last year's workouts. That's 10 vacant + 23 + 3 + 1 = 37 out of the 60 normal.
But wait! As this year wears on, delinquencies will continue to mount. We'll use the three percent figure, which may be appallingly optimistic. Another 21 homes, 15 left after workouts. So now it is 15 + 37 = 52/60. Add to that the inventory still coming on line, and there is a total disaster in the making.
That's as bad as it can get. We are in store for an awful lot of builder bankruptcies, a bunch more bank failures, and continued major falls of home prices. The workout/cure system is going to start blowing up too, because way less people will qualify and far more people won't bother.
In normal times, about 1 percent come onto the market from final removal (death or disability). Most of those aren't mortgaged, or are insignificantly mortgaged. Another 1-2% come on to the market from financial pressures. There should be at least 1 percent FTHB, and then the rest are moves. It's not as if prime buyers who put significant downpayments don't have to sell out when their circumstances worsen, but usually they are able to do so. The problem now is that we have many markets in which prices have fallen enough to put individuals who bought with significant equity in a situation in which they have to pay to sell or must do a short-sale.
There's just no price support! The difference between 2-3% motivated sellers and 5-6% must-sells is huge.
The MBA press release is here. Stuff like this should give even non-financial types pause:
The seasonally adjusted delinquency rate increased 47 basis points for prime loans (from 3.24 percent to 3.71 percent) and 148 basis points for subprime loans (from 17.31 percent to 18.79 percent). The delinquency rate decreased 33 basis points for FHA loans (from 13.05 percent to 12.72 percent) and increased 73 basis points for VA loans (from 6.49 percent to 7.22 percent).Oh lawdy. A prime serious deliquency rate of nearly two percent. And look at the increase progression correlation with time for prime loans:
The foreclosure inventory rate increased 26 basis points for prime loans (from 0.96 percent to 1.22 percent), and increased 209 basis points for subprime loans (from 8.65 percent to 10.74 percent). FHA loans saw a six basis point increase in foreclosure inventory rate (from 2.34 percent to 2.4 percent), while the foreclosure inventory rate for VA loans increased 12 basis points (from 1.12 percent to 1.24 percent).
Compared with last quarter, the seriously delinquent rate increased for all loan types, except FHA loans. The rate increased 32 basis points for prime loans (from 1.67 percent to 1.99 percent), increased 198 basis points for subprime loans (from 14.44 to 16.42 percent), increased five basis points for VA loans (from 2.83 percent to 2.88 percent) and decreased 41 basis points for FHA loans (from 6 percent to 5.59 percent).
Delinquent: 47 bps.So that goes from latest to oldest, and you can see the rise.... We really are all subprime now, except for people with fixed prime loans and no second liens:
90 Day plus: 32 bps.
Foreclosed: 26 bps.
Product: % of US Loans Outstanding : % of US Foreclosures Started
Prime Fixed 65% 19%
Prime ARM 15% 23%
Subprime Fixed 6% 11%
Subprime ARM 6% 39%
FHA 8% 7%
Total 100% 100%
What's going to happen in 2010 and 2011 when the Option ARM and Alt-A resets hit their peak?
This isn't the eye. This is the gust front. The real storm is still approaching. Which perhaps explains why we have McCain (too old to wait) and Obama (too wet behind the ears to know better) running for President right now ...
Since sales are recorded with a one or two month delay, These numbers proabably reflect the market of November 2007 through March or April this year -- but as the year-over-year comparisons indiicate, they are far down from the same periods of the bubble years. There are other indications that the sales pace did not pick up much in the spring selling season.
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