Thursday, May 14, 2009

We're Nowhere Near a Bottom in Housing Real Estate

From Marketwatch:

U.S. foreclosure filings in April rose to a record, affecting one in every 374 housing units, and bank repossessions in particular may spike in the next few months, RealtyTrac reported.

Foreclosure filings -- defined as default notices, auction-sale notices, and bank repossessions -- were reported on 342,038 U.S. properties in April, up less than 1% from March and up 32% from April 2008, the Irvine, Calif., real-state consulting firm reported.


"Much of this activity is at the initial stages of foreclosure -- the default and auction stages -- while bank repossessions ... were down on a monthly and annual basis to their lowest level since March 2008," Chief Executive James J. Saccacio said in a statement.

"This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria."

A lot of these foreclosures are not included in the inventory of homes available for sale (existing home inventory). This creates a problem from a measuring perspective because the under count in homes available for sale means its harder to estimate guess the rate of price declines. And my big data point with housing is the rate of price declines -- so long as they are in the double digits we are nowhere near a bottom in housing.

And then there is this:

Delinquency rates and defaults on office and retail buildings and hotels have more than doubled in just six months. For apartments and industrial buildings, the rates have increased more than 80 percent, according to Reis Inc.

That is an incredibly fast rate of acceleration; statistically it is far more than just a blip. It indicates there a big problem somewhere.

The risk to the economy is unknown, but likely underestimated in the government's stress test of 19 major banks. The results released last week projected that should the recession worsen, the losses from commercial real estate loans could hit $53 billion, or 8.5 percent of their overall loan losses over the next two years.

The exercise notably left out the majority of the regional and local lenders, which hold a big chunk of the nation's $3.5 trillion commercial property loans on their books and remain vulnerable.

Looks like a regional and local stress test are in order, eh?