http://www.americanbanker.com/issues/175_165/foreclosures-modifications-california-1024663-1.html
The GSEs have picked up the foreclosure rates a bit of late and real estate prices will likely suffer more over time for it (the median was down even more in this week's report), but if the banks start foreclosing and stop kicking the can, then all hell will break loose. The market is collapsing, sales are at record lows despite record low mortgage rates and prices are continuing to fall, yet there are over four million homes over 90 days delinquent and the banks are holding off on foreclosing big time. There are a number of "possible" reasons for this including the banks not wanting to come clean on the impact of their problem loans. What this will do is prolong the housing crisis for a very long time. I thought we would come out of the forest on residential RE next year but am now having second thoughts.
Not helping things is the percentage of homes under water. We are talking 11 million, or 23% of all homes with mortgages, are under water. That is a tad better than last quarter but largely because of foreclosures taking homes off the list. Think about that - 23%. That kind of pain will take a very long time to heal as house prices are not likely to recover to any significant degree for quite a while - not with all the foreclosures that will come on the market.
http://www.corelogic.com/uploadedFiles/Pages/About_Us/ResearchTrends/CL_Q2_2010_Negative_Equity_FINAL.pdf
Mind you, housing in most areas is priced below what it costs to build new housing and expectations are for further drops in prices. It could take a long time for home builders to be competitive and other than certain folks who insist on new homes, they probably have a few more tough years ahead.
Commercial real estate is no better off and it will likely suck wind for at least a couple of years too. In some markets there are improvements, but the reality is that malls are still overbuilt, consumers are continuing to cut debt (thank goodness), which does not bode well for malls and the like, businesses have rebuilt profitability by letting people go, which does not bode well for commercial RE, and so forth and so on. Did you know that the U.S. has 50% more retail space than the second closest country? Go figure. Really, go figure what that means for commercial RE when consumers are cutting back, facing high unemployment, homes under water and the like. Ain't pretty at all.
Most recessions were fixed by housing rebounds and/or consumer spending. This recession is not going to be fixed by either. So what will fix it? I am still trying to figure this out myself.
Across the Pond
Not a lot to say here but I just need to send out a reminder that the EU has a bunch of problems. After the EU went nuclear with it massive rescue effort, the problems in the PIGS - then PIIGS - were quickly forgotten, which is exactly what officials in the EU wanted. I do not want to burst their bubble, but getting people to forget about it for a while does not make the problem go away. Ask Ireland - Irish debt was just downgraded by S&P and it came at a very improvident time as Irish banks are in the process of trying to roll over 30 billion euros in debt. The downgrade makes this difficult to do and may force them to the ECB, which draws more attention to their problem, which may lead to more lenders being concerned and more downgrades and so forth and so on.
My point is that EU problems have not gone away and with their lust to cut debt as a percentage of GDP, their economies are definitely going to be challenged for the next few years. Double dip, quite possibly. As I noted the other day, Stiglitz, the Nobel Prize economist, thinks this will happen. Either way, it is just a matter of time before the world will again focus on the EU problems. And focus they will because the EU collectively has the world's largest economy, ahead of the U.S. and China (Japan just got relegated to not getting to stand on the medal stand). When the next wave of problems surface in the EU (they are there just not to the surface yet) it will be problematic for us here in the U.S. as well. Just one more thing to worry about.
I promise I will try to think of something more optimistic to report; as long as I believe what I am reporting I have no problem with it - really.
Survey
Help me out here. I have had a significant up tick in folks visiting this site. The two or so regulars I had are I assume still around but I am really seeing an up tick. So do me a favor and tell me why. Here are the reasons I can assume:
- I am posting on a more regular basis
- The economy is sucking wind so doom-and-gloomers like me are getting more attention
- Someone somewhere linked me or recommended me
- I suddenly became a much better writer than I was
- I have actually been more right than most folks of late
- It is a direct correlation to increases in population
- It is off season for most TV shows and you are tired of reruns
- My friends are paying you to mess with me
Please let me know. Vote now and vote often.
Disclosures: None.
1 comment:
All of the above.
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