If you only listen to the talking heads you may find it surprising that the housing correction is still ongoing. Quite simply put, with all the efforts of the US government, the Federal Reserve, and various agencies the best they have accomplished is to delay the decline. Now that all the capital is spent, all the programs finished the decline ensues. The only thing left in the bag is MOPE (Management of Perspective Economics).
What is MOPE? In a nutshell its a pathetic attempt to 'talk' people into an action. The theory goes that if you say its sunny outside, and its a torrential downpour, yet everyone leaves the house without an umbrella then the concept works.
For housing the concept is the same. Is everyone telling you that its sunny and "now is a great time to buy" and the justification they use is "look how much prices have come down" as evidence? The first thing I always ask these people is "Can you tell me when when would be a bad time to buy?". In hindsight they will all mention a few years ago ... but when the mania was at hand they were the very same touting the "housing never goes down in price" mantra.
What is left is wishful thinking and its pretty pathetic.
D.R. Horton's Donald Horton:
"Market conditions in the homebuilding industry are still challenging, with high foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards and weak consumer confidence. However, housing affordability remains near record highs, interest rates are favorable and new home inventory is still very low," Horton said. "We continue to focus on providing affordable homes for the first-time buyer while having product available for move-up buyers, further adjusting our cost structure relative to our current sales pace."
Translation: We're still in the dumps, but we're lowering prices, so come on and buy.
Pulte's Richard Dugas: "Over the near term, we expect the industry will continue to face low levels of demand and that overall operating conditions will remain highly competitive." Dugas then said he expects a return to profitability in the "back half of the year."
Translation: Still bad, but it has to get better, right?
Meritage's Steven Hilton:
"The market has obviously softened since the federal home buyer tax credit expired in April last year, as reflected in total U.S. home sales as well as our own sales and closings. As a result, we have offered larger incentives in some of our communities, resulting in lower margins that offset the improvements we are achieving in our new higher-margin communities...the spring selling season for the last few months is off to a tepid start, and we have not produced sales at the pace we would have hoped this far into the 2011 selling season. We believe the housing market in general is still bouncing along the bottom, with pockets of strength in certain of our markets."
Translation: We're lowering prices, throwing in upgrades, and it's not really working.
News that serious delinquencies are on the decline suggesting that those left standing in their homes will remain. Kyle Lundstedt of LPS Applied Analytics aka Dr. Doom reports that mortgage delinquencies, down more than 11 percent month-over month, are at the lowest level since 2008.
Emphasizing that subprimes, Alt-A's, the bad lending of the housing boom, have largely moved through the system already, not to mention that big banks and servicers are getting far more aggressive with loan modifications.
If anything this statement is more MOPE. Taken together I would agree. However Alt-A loans were not confined to just subprime lending. Many Alt-A loans were also prime which is where we find ourselves today with prime resets and recasts.
Dr. Doom finishes by stating "It's progress; it's not game-changing."
The foreclosure pipeline, that is loans 90+ days delinquent or in the foreclosure process, is enormous. Foreclosure inventory is at a new all-time high. There are so many loans still waiting to go into foreclosure...in fact the total number of loans 90+ delinquent is 45 times the size of the current monthly foreclosure sale number.
At the current REO sales rate it would take 48 months to clear the backlog. And this is just inventory in the pipeline, not counting the current shadow inventory or selling the delinquent inventory into the market. All that foreclosure inventory, for that long period of time, will weigh on prices no question.
And what about those aggressive writedowns Dr Doom mentions. Well according to the new MBA president David H. Stevens, who previously helmed the FHA for just a couple years before resigning to join the MBA, (at a hefty increase in salary I'm sure) noted that there are “only so many refis.”
Per the MBA forecast, the refinance share will drop to 26 percent in 2012, down from 37 percent this year and 66 percent in 2010. What seems to be remaining is the backlog of foreclosure inventory as the cure rate for many of these delinquent loans will diminish considerably.
I should include the caveat that all housing is local. Meaning what RE is doing in the flyover states may not be reflected in previous bubble states.
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