Any optimist talking up a housing recovery might want to pause and look deeper into the housing crisis. Amherst Securities Group analysts believe the market faces about 7 million properties that are likely to be seized by lenders have yet to hit the open market. There are two sources that contribute to a huge shadow housing inventory; coming from the next wave of forecloses due to a majority of ARM mortgages which are due to reset now through 2012 and from home current home owners who are struggling to make payments, that will put their homes on the market once the housing market makes a small bounce and to a lesser extent baby boomers retiring will downsize and put their homes on the market once there is a bump up in the housing market. This entire shadow inventory will halt the housing recovery and lead to the next leg down in the housing market.
The shadow inventory reflects mortgages already being foreclosed upon or now delinquent and likely to be and, assuming no other properties are on the market, it would take 1.35 years to sell this inventory based on the current pace of existing-home sales, analyst Laurie Goodman.
There have been a number of recent economic reports hinting at a stabilization of the housing market. In May and June, the S&P/Case-Shiller 10-city index of home prices rose, the first month-over-month increases in values since 2006, by +.49 in May and +1.4 in June. Prices for U.S. homes rose by .3% in July from June, the Federal Housing Finance Agency reported earlier this week. However it was also reported this week that home resale's dipped 2.7% last month after a four-month streak. A troubling sign that home resales are dropping during a seasonally strong time for the housing market and dipping sales while the $8,000 first time home buyer credit is still in effect. The credit is due to expire December 1, 2009.
The favorable seasonality will be over come the October housing numbers and the reality of a 7-million-unit housing shadow inventory is likely to set in. However it is likely the economic housing numbers will be misleading over the next few months and a majority will say it is the housing market turning around and recovering. I feel this is not the case, we are seeing a temporary stabilization of the housing market. The uptick in the housing numbers are due to banks slowing down the filing of forecloses due to the government loan modification program, the spring/summer seasonality strength of the housing market, buyers rushing to take advantage of the soon to expire $8,000 first-time home buyers credit and the record low mortgage rates thanks to the Federal reserve buying treasuries to help keep mortgage interest rates artificially low but that program is due to be over during the 1st quarter of 2010.
When the shadow inventory is unleashed and government is out of stimulus gun powder for the housing market, reality that the housing correction is not over will set back in. A major effort was made by the government to temporarily stabilize housing prices. The next leg down in the housing market is near. However the government can possibly extend these housing stimulus efforts which could slow the next move down, but how much more will they spend?
