Thursday, June 11, 2009
This chart shows the recast dates for various loans over the next five years, based on the current rate of negative amortization (copied from CalculatedRisk). I think it would be fair to assume that most of these are going to be defaults, as soon as (or slightly after) the recast time; almost everyone who can afford their house is either already in a fixed-rate mortgage (and thus not appearing on this chart). This virtual tidal-wave of defaults represents roughly $25,000,000,000 worth of housing inventory being added to the market, per month, for the next five years.
For reference, the NAR's latest statistics indicate there are only about $66B in sales of existing homes, per month, total, in the whole US. That lines up pretty well with the latest estimations of total home sales which are foreclosures, which is around 45% (REO's are selling slightly better than non-REO's, cause they are more realistically priced). Most people agree that the housing market is not likely to stop declining until foreclosure sales are back down to a smaller fraction of the overall sales (say under 10%), but the recast chart says sales would have to increase by a factor of almost 4x before that would be the case (ie: higher than the bubble-frenzy rate), and that situation will persist for at least the next five years. Anybody want to bet on that level of increase in sales numbers while the market is still declining? If so, have I got a poker game I want you in...
I used to think my prediction of roughly 50% decline in house values from peak to trough nationally was perhaps a stretch on the high end, and people were incredulous when I was saying it in 2007. These days I revise it by including phrases like "real value", to compensate for the massive inflation I expect the government's enormous deficit spending will create, but I also think it's now a conservative guess. Housing: not going up any time soon, plan accordingly.
Posted by Nick at 10:11 AM