Blog
June 7th, 2011

It’s not a double dip; it’s just one long slide

by Peter Miller

 

Bank Owned Sale SignThere’s a lot of talk these days about a double dip recession, an idea which is surely puzzling.

In terms of housing, economic data from the Federal Housing Finance Agency shows that real estate prices reached a bottom in the first quarter of 2009, rose and are now headed down again.

So, yes, there’s a factual basis for double-dip claims.

But such charts don’t tell the whole story.

Another FHFA chart tells a different story; one which better explains the gloom that hangs over housing: It’s not that we’re in a double dip decline, it’s that March real estate values are 19.8 percent lower when compared with the April 2007 peak.

In other words, when the real estate industry said prices were rising earlier this year, they were right in the sense that prices in 2010 were not falling as fast as they had been in 2009. The catch is that regardless of the pace, prices were still declining.

To quote my late father, this is like saying there is good news and bad news with a flat tire: “The bad news is that the tire is flat. The good news is that it’s only flat on the bottom.”

Are foreclosures a big part of the marketplace? You bet!

“House prices in the first quarter declined in most parts of the country,” said FHFA Acting Director Edward J. DeMarco. “In many local real estate markets, particularly those hit hard by this cycle, foreclosures and other distressed properties are still a key factor in recorded and anticipated future sales and may be delaying price stability or recovery. Fortunately, serious delinquency rates also are declining.”

Are foreclosures a big part of the marketplace? You bet.

The National Association of Realtors tells us that “the national median existing-home price for all housing types was $163,700 in April, which is 5 percent below April 2010. Distressed homes–typically sold at a discount of about 20 percent–accounted for 37 percent of sales in April, down from 40 percent in March; they were 33 percent in April 2010.”

So yes, foreclosures are a key factor in recorded sales. But, foreclosures could be an even larger factor.

There are two reasons why the market is not entirely swamped with foreclosures:

1. Like my father’s tire, the robo-signing scandal has delayed foreclosures in most states, meaning that the inventory of distressed homes is not growing as much as it possibly could. That’s the “good” news. The “bad” news is that the current inventory is so huge it cannot be absorbed with any speed.

“While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties sold to third parties,” said James J. Saccacio, chief executive officer of RealtyTrac. “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery. At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

2. You have to ask why “serious delinquency rates also are declining.”

Are times getting better? Is unemployment down and household income up? If not, then why are delinquency rates improving?

“Nationwide,” said RealtyTrac, “foreclosures completed (REOs) in the first quarter of 2011 took an average of 400 days from the initial default notice to the REO, up from 340 days in the first quarter of 2010 and more than double the average 151 days it took to foreclose in the first quarter of 2007.”

How can we possibly have fewer delinquencies when foreclosures are increasingly backed up?

Are the properties awaiting foreclosure not delinquent? Is the inventory of homes set for foreclosure not growing?

So, no, I don’t believe delinquency levels are “declining” any more than I’m cheered on by the plump part of a flat tire.

Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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