The main stream media and the administration pundits continue to put a positive spin on the recovery of the housing market.
Last week they trumpeted the proof of an emerging recovery.
Existing home sales jumped 7.4% between June and July. This represented the largest percentage increase in a decade.
The National Association of Realtors announced this increase, but also noted that the median selling price was down over 15% from the same period last year.
These encouraging sales figures were skewed by a large majority of low priced distressed properties. and were aided by very low interest rates and Federal tax credits for first time buyers.
The reality is sobering and the balance is extremely delicate and dangerous.
1. Most sales represent foreclosures and short sales, forced by financial distress,( almost 90% of the total.) Slightly over 10% can be considered normal sales
According to the Mortgage Brokers Association( MBA(, reportedly 1 in 8 mortgage holders are in some stage of delinquency or foreclosure.
The majority of the increase in existing home sales has been seller driven by falling prices and defaulting mortgages. These pressures will continue to exert downward pressure on real estate prices.
2. There is a change in the origin of defaulting mortgages. The past two years, the pressure has been primarily from sub prime home owners unable to refinance because their mortgages were under water.
The past 6 months has seen a shift from sub prime to prime borrowers, unable to make payments due to job loss and economic recession. According to the Mortgage Brokers Association, almost 60% of new foreclosures in current quarter were filed against prime borrowers, up from 40% last year. Sub prime was only 32% compared to 50% + last year.
3. The much larger number and size of the prime ARM’s which we have talked about extensively are set to begin adjustin in huge numbers beginning in 2010 and accelerating into 2011.
These are the infamous Alta and Option ARM’s which involve larger more extensive properties, and are arriving while unemployment continues to grow.
4. Commercial mortgages , Not heard from yet, but with all the abandoned stores and empty shopping centers, coupled with the wasteland developing in out industrial parks, these mortgages are a problem in the works.
5. Home inventory of existing homes. In July home inventory increased by 7 1/2 % to over 4 million hoes. This is almost a ten month inventory, and does not include the shadow inventory of people who want to sell but are waiting for an uptick in the real estate market before putting their home on the market.
This is going to be a cold winter, a Madoff’d( Scrooged) Holiday season, and an even colder winter and spring for 2010.
Sorry, but the truth is the truth.