Monday, September 21, 2009

Forecast Predicts Nashville Job Market Will Recover in 2012

According to this Nashville Business Journal article, Nashville predicted to recover in 2012, the Nashville metropolitan job market will return to pre-recession job levels in 2012 along with Memphis, Atlanta, Philadelphia, New Orleans, New York City, Boston and 12 other metropolitan areas. According to the article Austin and San Antonio in Texas will recover in 2010 and Dallas-Fort Worth and Houston and 6 other metropolitan areas will recover in 2011.

While all this sounds good, I am reasonably certain that it is not correct if by "pre-recession job levels" they are referring to the 4.5-5.5% unemployment rates that were the norm from 2004-2006. Those unemployment levels would certainly be welcome given that we now live in the era of 10%+ unemployment levels (10.8% for the state of TN in August 2009 according to the Tennessee Commissioner of Labor & Workforce Development James Neeley). Unfortunately, I cannot see how that can happen. The low unemployment rates of 2004-2006 were 70%+/- fueled by consumer spending that enabled businesses to sell products and services and, therefore, hire more employees. That consumer spending was enabled by cheap and easy to obtain debt (think HELOC's, credit cards, auto loans, personal loans, etc.). That debt is now largely gone, or at least significantly reduced.

Therefore, my problem with this article's rosy "pre-recession job levels" prediction is that it does not make sense. How can we return to "pre-recession job levels" if the consumer spending that created that low unemployment no longer exists? The answer is we can't and job levels will not return to "pre-recession job levels" for many, many years. I predict that unemployment rates will drop (i.e. the job market will improve), but the unemployment rates will stabilize at around 6.0-8.0%.

This will all negatively impact housing prices and ensure that foreclosures and short sales remain at relatively high levels for the next several years even after the job market recovers. Simply put, less people will be employed and, as a result, there will be less home buyers.

Saturday, September 19, 2009

FHA in Deep Trouble: Default Rates Skyrocketing

According to this Nashville Business Journal article, FHA reserves feeling the squeeze, and this CNBC article, FHA Cash Reserves to Fall Below Required Levels, high levels of FHA loan defaults have pushed FHA cash reserves below the mandated minimum levels.

Both articles state that the head of the FHA said that the agency will not need a tax payer bailout, that the FHA will hire a chief risk officer and that underwriting criteria will be tightened including higher minimum credit scores and stricter appraisal rules. The Nashville Business Journal article quotes the new release statements of FHA Commissioner David H. Stevens as saying "To be clear, the fund's reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action. That said, given the size and scope of the FHA and its importance to today's market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections."

According to the Nashville Business Journal article, the FHA has become an increasing source of mortgages for first time homebuyers. The problem is that the article also quotes a statistic from the Mortgage Brokers Association, which shows that about 1 in 6 FHA borrowers were behind on their mortgage payments (i.e. in default). That is a 16.67% mortgage default rate.  In other words it is TERRIBLE!  This will ultimately lead to lots of FHA foreclosures and short sales.

While I would like to believe the FHA's statements about not needing a bailout, I cannot. Mark my words, the FHA will indeed need a bailout. You just cannot lend people 96.5% of the purchase price of their home in a declining market and not expect large numbers of foreclosures. Even if the market was flat the FHA buyers would have negative equity due to the cost of selling a home exceeding their down payment.

Due to the Middle Tennessee housing market having relatively lower housing prices and incomes than other areas of the country, there are a lot of FHA home purchases. As a result expect a lot of FHA foreclosures and short sales in Middle Tennessee.

Friday, September 18, 2009

What the Government Should Do to Help the Housing Market: Stop Meddling in Housing and FIX THE ECONOMY

How should the government fix the housing market? The answer, stop meddling in the housing market. Instead, the government should focus on the economy. The fundamental question is why have jobs been leaving the US for the last 3 decades? Answer: taxes, government regulations (think environmental regulations that punish companies while doing nothing to help the economy such as CO2 emissions, etc., hiring quotas, employment laws, etc.) and labor unions. Fix those problems and employment and income rises. After several years maybe incomes will catch up enough and housing prices will fall enough that we actually reach a sustainable ratio of median home prices to median incomes (normally median home prices in an area are 3x incomes in that area) when overall employment is stable.

Right now we have increasing unemployment, increasing foreclosures and short sales, but artificial government meddling. This is causing confusion and chaos. For those who think we can ride this out with a 1 year extension of the tax credit, etc., please look at the stats. Foreclosures will remain at very high levels for 3-5 years and at high levels for several years beyond that. Unemployment, will start to go down in about 12-18 months, but it will not go back down to the 4.5%-5.5% levels of 2004-2005 because the economy (and the employment market) was so dependent on consumer spending and that spending will not come back since it was fueled and enabled by easily obtainable debt that is no longer available.

While this mess hurts me right now as a REALTOR and a homeowner who is trying to sell their home due a relocation, I know this is true. Declining housing prices are good for the economy. It will free up homeowners' capital that can be spent and/or invested in other areas instead of being sucked up by artificially high housing payments. It will enable people to actually eventually own their own homes and live with less debt and stress instead of living on the absolute edge. It is better to pay less for a home with higher interest rates then to pay more (and borrow more) at lower rates. This is all just a deleveraging of the US economy, which IS NECESSARY.

Mark my words, eventually the government subsidizing of the real estate market will end and the housing market will decline more. It is unavoidable.

Tuesday, September 15, 2009

My Thoughts on the "Doomed" Housing Market: Listen When "Dr. Doom" Speaks

According to this CNBC article, US Economy Facing 'Death by a Thousand Cuts': Roubini, Nouriel Roubini says "more banks will fail and residential real estate prices have more room to decline."  According to Roubini, the economy faces a real threat of a "double dip" recession due to the severely damaged financial system and a lack of consumer spending.  Roubini says "the securitization market is all but dead, the credit markets are still frozen and consumers will continue to save more rather than spend and boost growth."  He predicts that by the time this financial and economic crisis is all over the following will happen:
  • More than 1,000 financial institutions could fail.
  • Housing prices will likely to fall another 12 percent in the next year making the total decline approximately 40 percent since the market began its steep decline. This will result in nearly one half of all homeowners owing more on their mortgages than their houses are worth.
Regarding housing construction, Roubini states "The gap between supply and demand is so huge we could stop producing new homes for a year to get rid of all the inventory  This price adjustment, in my opinion, is going to continue for another year."

Regarding commercial real estate, he warns that regulators are repeating some of the same mistakes made during the financial crisis. He states "Allowing forbearance in the deeply troubled sector will mask underlying problems that will come back and bite the economy".

While I do have a BA degree with a major in Economics from an Ivy League University, I am not a professor or professional economist.  However, I have been saying much of the same for months now.  That is that housing prices are still too high and there is still too much new construction.  We do not need new construction reduced to such and such levels - we need all new spec construction to come to a halt for at least a year.  Of course, that will not happen.  Instead new homes will be built, housing will continue to decline, more short sales and foreclosures will occur and more bailouts will be doled out to foolish banks and lenders.  It's an endless cycle of disaster.

With respect to the Middle Tennessee real estate market:
  • Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
  • Williamson County Tennessee: Brentwood TN and Franklin TN
  • Davidson County Tennessee: Nashville TN and Belle Meade TN
I have been saying since I moved here in September 2008 that the Middle Tennessee housing and commercial real estate market is significantly over built and that housing prices are still too high.  Since the peak of the real estate market in Middle Tennessee occurred in late 2007/early 2008 (i.e. 2 years later than most places) the market here will decline for a few more years.  Also, a large portion of the homes sold with 95-100% subprime and FHA financing which have high default rates so short sales and foreclosures will be high in Middle Tennessee.  Therefore, I predict that the Middle Tennessee real estate market will do worse than the US average over the next few years.

Monday, September 14, 2009

Navigating Short Sales - Help and Assistance for Sellers Who May Need to Sell via a Short Sale

The information below is intended to provide help and assistance for sellers who may need to sell their home via s short sale as a result of a personal hardship (i.e. illness, job or income loss, etc.) and their home being worth less than the total mortgage balances. This information is valuable for sellers in any area of the country. However, I personally service the following areas in Middle Tennessee:
  • Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
  • Williamson County Tennessee: Brentwood TN and Franklin TN
  • Davidson County Tennessee: Nashville TN and Belle Meade TN



Navigating Short Sales: What to Do When the Sale Price Leaves You Short


If you're thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as:
  • Refinancing your loan at a lower interest rate
  • Providing a different payment plan to help you get caught up
  • Providing a forbearance period if your situation is temporary
When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if
  • Your property is worth less than the total mortgage you owe on it.
  • You have a financial hardship, such as a job loss or major medical bills.
  • You have contacted your lender and it is willing to entertain a short sale.
2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional* and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won't try to take advantage of your situation or pressure you to do something that isn't in your best interest.
A qualified real estate professional can:
  • Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
  • Help you set an appropriate listing price for your home, market the home, and get it sold.
  • Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
  • Ease the process of working with your lender or lenders.
  • Negotiate the contract with the buyers.
  • Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include
  • A hardship letter detailing your financial situation and why you need the short sale
  • A copy of the purchase contract and listing agreement
  • Proof of your income and assets
  • Copies of your federal income tax returns for the past two years
4. Prepare buyers for a lengthy waiting period. Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
  • If you have only one mortgage, the review can take about two months.
  • With a first and second mortgage with the same lender, the review can take about three months.
  • With two or more mortgages with different lenders, it can take four months or longer.
When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
5. Don't expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:
  • You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
  • Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
  • Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA. 
Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights reserved.

Saturday, September 12, 2009

Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in August 2009

Middle Tennessee Residential Property Foreclosure Activity Report
Residential Real Estate Market Sales Activity - Foreclosures, Pre-foreclosures and Short Sales Compared to Regular Listings
Counties & Cities/Towns Covered:
Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
Williamson County Tennessee: Brentwood TN and Franklin TN
Month & Year
August 2009
Start Date
8/1/2009
End Date
8/31/2009
City/Town
Active Listings - Total
Active Listings - % Foreclosures & Short Sales
Pending Sales - % Foreclosures & Short Sales
Months of Residential Inventory Based on Pending Sales Rate
Murfreesboro
1,322
8.25%
13.22%
5.46
Smyrna
389
13.11%
18.33%
6.48
La Vergne
291
20.27%
47.54%
4.77
Brentwood
645
3.41%
5.56%
11.94
Franklin
1,127
2.75%
3.03%
11.38
Totals & Averages
3,774
7.21%
15.12%
7.31
Notes:
As you can see from the chart above the percentage of Pending Sales that are distress sales (Foreclosures and Short Sales) is greater than their representation as a percentage of Active Listings.  This means that these distressed listings are Pending (i.e. selling) at a faster rate then regular listings.

Friday, September 11, 2009

US treasury Sees Millions More Foreclosures

According to this Reuters article, U.S. Treasury sees millions more foreclosures, even with the ever increasing efforts of the Federal Government via the Home Affordable Modification Program, or HAMP, foreclosures will increase.  In fact according to Michael Barr, assistant Treasury secretary for financial institutions, "even if HAMP is a total success, we should still expect millions of foreclosures".

So we have an insiders view that foreclosures will continue to increase.  We also have the readily available news that unemployment keeps increasing.  Can somebody please explain to me how the real estate market is improving in spite of this these things?  To me, an improving real estate market defies logic and reason.  I see no evidence that the real estate market will improve anytime soon.

Be Wary of So Called "Good News"

According to this Reuters article, Pace of U.S. existing home sales fastest in 2 years, sales of previously owned homes increased by 7.2% in July 2009, to the fastest pace in nearly 2 years. That all sounds great, but later in the article it states "The inventory of existing homes for sale in July rose 7.3 percent to 4.09 million units from the previous month, NAR said. At July's sales pace, that represented a 9.4 months' supply, the same as in June."

Here is why that statement is foolish.  Sales are a subset of Inventory (you cannot have more sales than there are homes for sale).  If Inventory increases at a higher rate than sales and Inventory is a larger number to begin with then it is simple math to say that the overall number of homes for sale (i.e. Inventory) actually INCREASED.  The article spins this by using July's home sales number and then comparing that to the new Inventory level to conclude that total Inventory remained the same as June at 9.4 months supply.  Now ask yourself, is July a peak selling month?  If so, does it make sense to divide the new Inventory figure by a peak sales figure and state that Inventory has not increased?  Of course it doesn't.  Therefore, mark my words, the actual supply of homes for sale (i.e. Inventory) has indeed increased which is bad news for the real estate market.

My Real Estate Market Thoughts of the Day

This post may be a bit of a ramble so I apologize for this in advance. I just had to get some things off my chest.


The last time the real estate market melted down (think late 80's/early 90's) it took 7 years for homes to regain their losses. This meltdown is far worse because it is not just due to real estate over development/over building. It was caused by debt. Plain and simple. That is why the folks in Washington cannot fix this problem - you cannot fix a problem caused by debt with more debt. It defies logic and reason. The facts are that even at their current reduced levels, home prices are still out of line with incomes when compared to historical trends. Therefore, contrary to NAR homes are not actually affordable (Side note: I really cannot stand the NAR Home Affordability Index. Since when did Realtors become used car salespeople hawking homes by pushing the monthly payment instead of the price of the home?).

The reason loan modifications will not work is that they do not address the core problem: mortgage balances are too high relative to the market value of the homes. Many homeowners are actually now underwater (i.e. mortgage balances exceed the value of their home). According to a recent Deutsche Bank report, by 2011 about 48% of all US mortgages will be underwater. Since being underwater is now the #1 statistical driver of defaults (not credit scores) you can bet on high foreclosure rates for years to come.

Since the entire economy was built on consumer spending, and that consumer spending was fueled by debt, and that debt is no longer available you can be sure that when things do actually turn around unemployment will still remain relatively high with a likely range of 6-8% as opposed to the 4-5% range we enjoyed a few years ago. Based on the persistent debt problem and the long term unemployment problem I just do not see how the real estate market will recover anytime soon.

This whole thing is sadly comical. You have nonsense from NAR and the mainstream media about how the real estate market is turning a corner and recovering yet foreclosures and unemployment keep increasing. The US real estate market has never recovered under such circumstances and this time will not be the exception. Almost every day I fell like screaming "STOP THE NONSENSE." If our policy makers would just let housing prices decline to their normal (historical) sustainable levels and get rid of the FHA loans, other low/no down loans, ARM loans and other artificial financing not only would this type of problem never happen again, but the social engineers in Washington would not have to worry about "affordable housing" since housing would in fact ALREADY BE AFFORDABLE. Sometimes the answer is just plain old common sense. I predict that values will continue to fall rapidly through 2011 (when the large wave of Option ARM foreclosures ends) and then continue to decline gradually until the foreclosure rate reduces to normal levels and the unemployment rate reduces back down to a more realistic 6-8% mentioned above. At that point real estate values will recover at the normal 4-7% per year.

Tuesday, September 1, 2009

Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in August 2009

According to the data I researched in the Middle Tennessee MLS (RealTracs) as of 9/1/2009, the following Market Statistics paint a troubling picture for the 3 main cities/towns in Rutherford County Tennessee:

Active Listings
  • Murfreesboro TN -109 out of 1,322 Active Listings (or 8.25%) are shown as Short Sale or Foreclosure listings.
  • Smyrna TN - 51 out of 389 Active Listings (or 13.11%) are shown as Short Sale or Foreclosure listings.
  • LaVergne (or La Vergne) TN - 59 out of 291 Active Listings (or 20.27%) are shown as Short Sale or Foreclosure listings.
Pending Sales
  • Murfreesboro TN -32 out of 242 Pending Sales (or 13.22%) are shown as Short Sale or Foreclosure listings.
  • Smyrna TN - 11 out of 60 Pending Sales (or 18.33%) are shown as Short Sale or Foreclosure listings.
  • LaVergne (or La Vergne) TN - 29 out of 61 Pending Sales (or 47.54%) are shown as Short Sale or Foreclosure listings.
As you can see in all the towns above the % of Short Sales and Foreclosures is high for both Active Listings and Pending Sales. However, the worst part is that when looked at as a percentage of Pending Sales the Short Sale and Foreclosure share of Pending Sales is relatively high when compared to percentage of Active Listings to the tune of 50%+. This means that regular (i.e. non Short Sale and Foreclosure) listings will have a difficult time selling as a large share of Pending Sales are lower priced distressed properties.

For Murfreesboro and Smyrna the % of Pending Sales that are Foreclosures and Short Sales remained about the same as last month, but for La Vergne the % increased from 34% to 47.54%. While the real estate markets in Murfreesboro TN and Smyrna TN are definitely hurting and prices are declining, the La Vergne real estate market is in really bad shape.

Prime Mortgages Make Up One Third of Foreclosure Actions

According to this Forbes.com article, Prime Mortgages Are Failing, between April and June of 2009 13% of all homeowners in the United States were either behind on their mortgage payments, or in foreclosure. If that is not bad enough news, the article goes on to state that while subprime (sub prime) ARM loan defaults decreased, the decrease was offset by large a large increase in the number of delinquent prime mortgages (that is mortgages to the most credit worthy borrowers who actually invested down payments, had verifiable jobs and excellent credit). The article quotes Jay Brinkmann, chief economist of the Mortgage Bankers Association (MBA), as stating "Prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime (sub prime) adjustable-rate loans." According to the article, the MBA defines delinquencies as those between 30 and 90 days past due. Homeowners beyond 90 days past due, or in foreclosure, are identified as seriously delinquent. The article blames increasing unemployment and declining property values (think underwater homeowners) as the main causes of this huge increase in prime mortgage foreclosure starts. According to the article, California, Florida, Arizona and Nevada continue to make up the largest % of foreclosures, but that % has decreased from 46% in the 1st quarter of 2009 to 44% in the 2nd quarter of 2009. The article states that Florida is in particularly bad shape with 12% of mortgages in the process of foreclosure, and at least 22.8% are delinquent. Also, according to the article, there was a major jump in Federal Housing Authority (FHA) foreclosures.

Here is my synopsis of the real estate market based on the information above and other information.
  • The most financially responsible borrowers (prime mortgagors) are hurting. Even large down payments are not enough to counter the huge price declines. More homeowners underwater = more foreclosures.
  • Foreclosures are increasing in general. This will cause more price declines.
  • While the "Fab 4" (California, Florida, Arizona and Nevada) are still the kingdoms of foreclosure and prices will surely continue to fall in those markets, the decrease in % of total foreclosures nationwide from 46% to 44% while overall foreclosures increased means that foreclosures in other states increased at a higher pace that the "Fab 4" states. This means prices will decline nearly everywhere.
  • More distressed homeowners will cause more people to try to rent out their homes. Until prices decline to a point where monthly rents exceed total monthly housing payments prices will continue to decline. Rampant foreclosures will make sure prices actually head below this normal equilibrium.
  • Government meddling (expanded FHA mortgages, tax credits, etc.) has not and will not work to save the real estate market. The market is correcting itself to sustainable levels. FHA mortgages are now failing at alarming rates. Tax payers will once again have to foot the bill for regulatory incompetence. It seems that very few people are stating the truth about the real estate market. That is that high housing prices are bad for people (especially lower income people) and high commercial real estate prices are bad for business, which is in turn bad for job growth. Also, real estate has never (until the last few years) been the driver of the economic bus. It has been the passenger, meaning that economic growth (and the resultant business, job and income growth) caused housing prices to increase and new construction to increase. Not the other way around. Any attempt to work in reverse logic = insanity.
Please be clear about my opinion. "The worst is yet to come." I have been saying this since early 2006 and I see no reason to change my outlook on the housing and commercial real estate markets.

Wednesday, August 19, 2009

TransUnion.com: Mortgage Loan Delinquency Rates Rise

According to this TransUnion News Release, TransUnion.com: Mortgage Loan Delinquency Rates Rise - But Pace Is Slowing, mortgage delinquencies (the % of borrowers that are 60 or more days past due) increased for the 10th straight quarter reaching an all-time high national average of 5.81% for the 2nd quarter of 2009, which is an 11.3% increase over the 1st quarter's national average of 5.22%. The news release goes on to say that the "good news" is that this increase is less than the almost 16% that occurred from the 4th quarter of 2009 to the 1st quarter of 2009. Of course the news release goes on to state that year over year mortgage loan delinquencies increased a staggering 65%.

The Analysis section of the release reads "In its first quarter analysis, TransUnion reported a potential positive sign in mortgage delinquency rate trends. For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency showed a decrease," said FJ Guarrera, vice president of TransUnion's financial services division. "Now, with the release of second quarter results, we see even more deceleration in mortgage delinquency, an indication that the mortgage market is beginning to stabilize." "There are several complementary economic statistics at the national level to support this guarded optimism, such as the increase in consumer confidence in the second quarter. As for the labor market, although unemployment had continued to rise through the second quarter, July figures for unemployment insurance were lower than expected. Furthermore, recent figures from the government show the unemployment rate actually dipping to 9.4 percent nationally in July. These encouraging economic signs, coupled with a decrease in the rate of mortgage delinquency growth, suggest that we may have seen the worst of the recession. This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," continued Guarrera.

The news release continues by stating that they project that the average mortgage loan delinquency rate will peak at just under 7% by the end of the year. The release goes on by stating However, due to a continued downward trend in housing prices throughout the year as well as high unemployment levels, TransUnion does not see national delinquency rates beginning to fall until the first half of 2010.

Frankly, I find TransUnion's rosy views comical. First, unemployment only fell to 9.4% in July due to nearly 500,000 being removed from the unemployment figures not because they found a job, but because they UNEMPLOYED TOO LONG! Also, there is no way that the mortgage loan delinquencies have turned a corner. With unemployment continuing to rise, increasing numbers of homeowners owing more than their homes are worth (i.e. underwater homeowners) and the wave of ARM mortgages coming due in May 2010 you can absolutely bank on increasing foreclosures and short sales. There is just no way around it. The bottom is something we have yet to see.

Thursday, August 13, 2009

RealtyTrac: U.S. Foreclosure Activity Up 32% from July 2008 and 7% from June 2009

According to this RealtyTrac press release, U.S. FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN JULY, in July 2009 US foreclosures increased by 32% from July 2008 and by 7% from June 2009. According to the press release, July is the 3rd time in the last 5 months that a new record has been set for foreclosure activity. Again, the 4 hardest hit states were Nevada, California, Arizona and Florida. However, there were a many other notable problem areas with Utah at #5, Idaho at #6, Georgia at #7, Illinois at #8, and Colorado at #9. Tennessee ranked 22nd (worse than average), while Pennsylvania, a more stable area, ranked 34th (better than average). A complete list of the July 2009 state by state foreclosure rankings are below (courtesy of RealtyTrac):

U.S. Foreclosure Market Data by State – July 2009



Properties with Foreclosure Filings

Rate Rank

State Name

NOD

LIS

NTS

NFS

REO

Total

1/every X HU (rate)

%? from Jun 09

%? from Jul 08

--

U.S.

62,939

71,565

104,830

33,557

87,258

360,149

355

6.74

32.32

33

Alabama

0

0

1,630

0

452

2,082

1,026

-23.34

141.25*

24

Alaska

3

0

266

0

102

371

761

76.67

79.23

3

Arizona

2

0

14,120

0

5,572

19,694

135

16.99

47.52

21

Arkansas

104

0

1,319

0

828

2,251

572

35.03*

110.77*

2

California

50,917

0

35,802

0

21,385

108,104

123

6.99

49.55

9

Colorado

5

0

3,947

0

1,536

5,488

388

-4.12

2.08

29

Connecticut

0

1,084

0

190

295

1,569

917

7.84

-22.10

37

Delaware

0

0

0

226

72

298

1304

-12.61

125.76


District of Columbia

267

0

219

0

35

521

546

24.94

-6.80

4

Florida

0

35,227

0

14,502

6,757

56,486

154

6.78

23.11

7

Georgia

1

0

7,616

0

3,519

11,136

356

-20.59

10.68

15

Hawaii

186

0

481

0

323

990

512

40.23

332.31

6

Idaho

1,290

0

1,051

0

150

2,491

253

32.43*

166.13*

8

Illinois

0

6,770

0

4,060

3,694

14,524

361

34.53

62.92

17

Indiana

0

1,015

0

1,881

2,290

5,186

536

-6.86

8.43

43

Iowa

0

0

227

0

374

601

2,212

7.32

20.68

30

Kansas

0

183

0

408

728

1,319

925

37.68

94.83

39

Kentucky

0

405

0

488

341

1,234

1,545

9.30

0.65

40

Louisiana

0

6

0

928

183

1,117

1,664

-23.07

9.83

41

Maine

0

138

0

212

57

407

1,712

39.38

59.61

11

Maryland

0

3,521

0

633

998

5,152

450

66.19

65.98

16

Massachusetts

0

3,548

0

1,049

517

5,114

532

58.77

43.09

19

Michigan

1

0

2,695

0

5,561

8,257

548

-39.32

-28.76

20

Minnesota

12

0

2,266

0

1,847

4,125

559

23.80

146.86

45

Mississippi

0

0

354

0

124

478

2,625

-36.69

151.58*

27

Missouri

5

0

1,729

0

1,441

3,175

834

2.02

-9.60†

47

Montana

0

0

2

0

88

90

4,839

45.16

-36.62

46

Nebraska

0

164

0

5

26

195

4,004

30.87

-70.45

1

Nevada

7,139

0

7,833

0

4,563

19,535

56

4.11

94.18

31

New Hampshire

0

0

611

0

12

623

954

42.24

-31.01

18

New Jersey

0

4,210

0

1,505

752

6,467

541

49.25

39.92

32

New Mexico

0

479

0

270

128

877

983

23.52

61.21*

38

New York

0

4,613

0

871

470

5,954

1,334

22.76

-3.45

36

North Carolina

1,120

0

756

0

1,552

3,428

1,203

7.97

-20.33

48

North Dakota

0

1

0

26

23

50

6,211

56.25

-23.08

12

Ohio

0

5,062

0

3,032

2,927

11,021

460

-2.05

-18.10

35

Oklahoma

595

0

522

0

420

1,537

1,056

18.69

-11.05

10

Oregon

29

0

2,463

0

1,113

3,605

446

15.80

84.40

34

Pennsylvania

0

1,869

0

1,805

1,642

5,316

1,030

7.59

27.36*

28

Rhode Island

0

0

17

0

488

505

893

-44.63

2.23

26

South Carolina

0

1,209

0

484

735

2,428

833

44.01

82.15*

42

South Dakota

0

60

0

56

48

164

2,178

45.13

446.67*

22

Tennessee

0

0

2,263

0

2,309

4,572

596

-2.20

0.15††

25

Texas

24

0

7,194

0

4,859

12,077

781

0.45

16.64

5

Utah

1,234

0

1,728

0

732

3,694

250

6.42

93.30

50

Vermont

0

0

0

0

11

11

28,312

0.00

120.00

14

Virginia

5

0

3,927

0

2,474

6,406

511

23.48

11.51†

13

Washington

0

0

3,632

0

1,738

5,370

511

14.79

94.42*

49

West Virginia

0

0

119

0

20

139

6,350

21.93

265.79

23

Wisconsin

0

2,001

0

926

890

3,817

671

8.10

86.74*

44

Wyoming

0

0

41

0

57

98

2,473

16.67

-26.32

* Actual increase may not be as high due to data collection changes or improvements
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008


U.S. Foreclosure Rates Heat Map – July 2009

A US Foreclosure Rates Heat Map for July 2009 is below (courtesy of RealtyTrac). As you can see, many counties in Tennessee experienced high rates of foreclosure activity in July 2009. Although the map is small (and difficult to tell for sure), it appears that some of the hardest hit counties are Davidson, Williamson and Rutherford. Rutherford County TN appears to have one of the highest foreclosure rates in the entire the state of Tennessee.



After the RealtyTrac press release was issued, a Bloomberg article, U.S. Foreclosure Filings Set Third Record-High in Five Months, obtained additional information from the following real estate sources and experts.
  • National Association of REALTORS (NAR) - The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter of 2009, the most in records dating to 1979.
  • Zillow - Almost one-quarter of U.S. mortgage holders are now underwater (i.e. they owe more in mortgage debt than their homes are worth).
  • Stuart Gabriel (director of the UCLA Ziman Center for Real Estate in Los Angeles) - “There are a slew of factors showing fundamental weakness on the demand side: tighter underwriting, job loss, investors who’ve been badly burned. We have not seen the bottom of the housing market.”
  • Diane Swonk (chief economist at Chicago-based Mesirow Financial Inc.) - “We’re in a deep hole. There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy. It has been more profitable to put a home in foreclosure than restructure the loan. The only thing that helps is forgiveness of principal, and there is little willingness to do that.”
The information above from RealtyTrac and the additional information and quotes are all proof that what I said several months ago is true: "The worst is yet to come." The real estate market is still declining and will actually accelerate downward starting in the summer of 2010. The major issues that will continue to harm the real estate market are as follows:
  • Continued job losses.
  • More and more homeowners underwater.
  • Massive government debt which will result in higher interest rates.
There is no way to escape what is coming. All the events that will cause the impending declines have already happened.