Mark Fleming, Ph.D., Chief Economist for CoreLogic, in a presentation yesterday, said the housing market is not out of the woods yet as the potential of a double-dip in our economy increases and as 30 to 40 percent of economists feel there is a chance of another recession. The economy’s “stall speed” was another issue Fleming said was a concern, describing it as similar to the stall speed of an airplane; that speed at which is still fast enough for the plane to be flying, but just on the edge of stalling and no longer able to maintain flight. Fleming said, for the economy, a 1 percent growth rate is historically the “stall” point and that is right about where we are presently.
Fleming, in his hour-long presentation, covered a lot of aspects of the economy and it’s impact on the housing market, which I can sum up as a concern about the economy and the housing market, an expectation of a “long, slow, muted recovery of the housing market“, an expectation of unemployment remaining around 9 percent for the next couple of years and housing price appreciation turning positive in 2012.
Other highlights from the presentation:
~Distress in the “shadows”~
- Shadow inventory (homes with seriously delinquent mortgages, in foreclosure or owned by lenders and not active on MLS) is currently at about 1.6 million homes. This will be a drag on the housing market for a couple of years to come, but is improving (peak was around 2 million homes in early 2010).
~Foreclosures~
- Current serious mortgage delinquency rate just under 8 percent (down from a peak of about 9 percent in 2009).
- Foreclosure filings are going down, however not as a result of the mortgage delinquency rate declining but more a result of a slow down in the foreclosure process due to regulatory compliance issues.
- While it’s hard to say how many foreclosure filings there should be presently, it is clear that, based upon the mortgage delinquency, there should be more filings than there are.
~Negative Equity~
- Nationally, 22.5 percent of homeowners with a mortgage are in a negative-equity position. This rate is slowing declining but, unfortunately, not because home prices are improving but instead because foreclosures have removed some loans from this category.
- In Nevada the negative equity rate is about 60 percent, Arizona almost 50 percent and Florida over 45 percent.
~Interest Rates~
- Approximately 28 million mortgages in the U.S. are at above-market rates (meaning 1 percnet or more above the current market or, as of today about 5.1 percent or above).
- 53 percent of homeowners with positive equity in their homes should refinance their mortgage to take advantage of lower rates. Many will not be able to meet current toghter underwriting and LTV (loan to value) standards however.
- 75 percent of underwater homeowners should refinance their mortgage but cannot due to negative equity.
~MLS Data~
- Time to sell a home in the U.S. is about 175 days presently.
- Homes are selling for just a tad over 90 percent of the asking price. In a healthy market this would be close to 100%, but it is improving.
- There is an oversupply of homes for sale, however it is improving as well. There is currently a 9.5 month supply of homes and a healthy market would be about 6 months.
- The market velocity is improving (the number of closed sales per month vs. the number of new listings) and is currently at about 1.5 meaning for every 1 new home that comes on the market, 1.5 homes are removed from the market due to a sale. While this rate is not high enough to correct the oversupply, it is moving the right direction.
- Just under 1/3 of all home sales are distressed sales. While this number hasn’t improved much, the encouraging thing is that short sales’ share of this number has increased, which is a positive.
For those that read my articles you know I have my own opinions on the housing market and am frequently a critic of some economists (especially one’s with self-serving opinions). Having said that, I have always liked Mark Fleming and found him to have a good handle on the market and not be under the influence or pressure of others to cast the market in any particular light and would say his presentation was pretty much right-on with the market.
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