- Dennis Norman
Thanks to what has happened to the housing market as well as home prices over the past two years I have come to hate the word “bubble”and believe me,I think it has been way over-used by people writing about and discussing the real estate market. So I cringed as I typed the title to this post but I can’t help but having flashbacks to a couple of years ago when I think about the current state of the real estate market.
Finally,we have recently had good news about the housing market and,in particular,home sales and the real estate market has shown signs of stabilization and that we may have seen the worst of it. However,just when you think you may be through the storm though you see another dark cloud lurking in the distance. For the real estate market this dark cloud could very well be mortgage delinquencies and foreclosures.
At the end of this week the Mortgage Bankers Association reported that serious mortgage delinquencies (homeowners that are 90 or more days past due on their house payments or are already in foreclosure proceedings) reached record levels in the 2nd quarter of 2009 and surpassing the record set in the prior quarter. According to the Mortgage Bankers Association statistics over 13 percent of all loans are now past due and 1 in 12 borrowers is seriously delinquent on their mortgage. This is a 45 percent increase from a year ago when 1 in 22 borrowers were seriously delinquent and a whopping 70 percent increase from two years ago when only 1 in 40 was.
This shows that the proportion of struggling homeowners continues to climb-even though the number of foreclosures has remained fairly constant this year (albeit at record levels unfortunately). The problem is not just with sub-prime loans as we have heard a lot about in the past but spans all sectors of the market and includes sub-prime,prime and FHA mortgages. I would say by the statistics we are seeing the Obama administration’s loan modification plan,which was supposed to help borrowers that are struggling to make their house payments by lowering their payments,clearly isn’t working or the problem is much larger than the administration anticipated and it’s only making a dent in the problem.
My take on this situation is that the record number of mortgage delinquencies we are seeing is going to continue to fuel the record levels of foreclosures we have seen of late and the foreclosures will continue to have a negative affect on the overall housing market as well as house prices. Recently we have seen,in home sale statistics,that the negative impact of foreclosures is lessening on the real estate market a result of prices being beaten down enough to bring buyers back out however a flood of foreclosures over the next few months could very well disrupt this delicate balance we have presently in the real estate market.
So the $64 question is;has the market recovered enough to withstand the impact of these delinquencies and foreclosures or will we start hearing that sickening sound of air escaping from the bubble again? Let’s hope its the former and not the latter.
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