If you dig around the bottom of the oak tree long enough, even a blind squirrel will stumble across an acorn. I was doing my normal morning reads of blog entries and reports on line and came across the best overview of why the housing market has probably NOT reached bottom. The information is vital for anyone that wants to understand what the future might hold. No one has a crystal ball. Everyone can grasp that a train travelling at 100 mph will destroy whatever may be in it’s path that is sitting still 10 feet away.
All the rosey reports from the administration and all the positive statements from the National Association of Realtors are not, I repeat, are not a light at the end of the tunnel.
I ask that you read this blog in total. I ask you because I believe that everyone has a right to all the information. I won’t even try to persuade you that one side or the other is telling the truth. I will merely present the facts that I have culled from different sources. I will leave you to ponder the post and at the very least be in the position to have a better understanding about what is really on those tracks.
Most people out there probably know somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home’s value has dipped below what they still owe on the home. I know some within my own personal and professional circles Some of them ask me to advise them as a professional or a friend because all the data is very confusing. They are in a tough spot and don’t understand what has happened or if there is a way out of their dilemma. These are very tough times for the families that are behind in their mortgage or have no plans to sell but have seen their equity vanish overnight. The two most frequent questions asked are “when is this going to stop and where are we heading?”
The answer is up in the air? There are trends and information that give an indication of what is going on behind the headlines. These are a few graphs that show the trends nationally with regards to mortgage delinquincies:
This chart is by quarter – Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. We all see the foreclosure process unfolding in our neighborhoods but the looming delinqency-to-foreclosure issue is far, far larger.
The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”
Now you might read that and say “yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while”. That WAS true, but not anymore! We call that the“Cure Rate”, that is the rate of delinquencies that go back to current. The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency). However, as of July 2009 the rate had dropped to just 6.6%! That means that over 90% of delinquent customers are going to foreclosure. Please take a moment and consider the implication of that fact. Take a look again at the above chart…
The next thing someone will say is “well, that’s in those hard hit areas’ and not where I live”. Here’s the chart for all 50 states showing the same breakdown of delinquencies and foreclosures. Most states have a significant problem, especially compared to historical figures. The problem exists in the North, South, East and West. It exists on the coasts and in the middle of the country. It my friends is everywhere.
Now some may say is “aren’t those loans going to get ‘fixed’ by a loan modification?” I know several people right now who are applying for a loan modification but are waiting and waiting. I hope it works out for them…
In reality, loan modifications are hardly making a dent. Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate? Why are they being SO difficult? The people I know don’t want to be foreclosed. They CAN make payments. They just need the terms redrawn to allow them to catch & keep up. Loan modifications are not helping us get this crisis under control.
It would seem that loan modification is window dressing on a house and senate full of no answers. What are the causes of all these delinquencies? Here’s a chart that is enlightening:
We hear a lot about adjustable rate mortgages being the culprit, but in reality it’s the loss of jobs and the tanking real estate market that’s the perfect storm.
You don’t have to ask why I continue to point out the negative equity problem. You might be better off asking your elected officials what their plans are to resolve this problem.
I have to thank Jeff Geoghan for bringing lots of this information to me in a post on Active Rain. If you would like to contact Jeff, let me know and I will point you in the right direction.