Wednesday, June 23, 2010

New Home Sales Bloodbath

New home sales for May were released this morning.  They began tracking this number back in 1963, this was the lowest recorded number in history coming in at 300,000 annualized, a 33% monthly drop.


This spells tremendous trouble for the home builders in the coming quarters, however, this is excellent news for the housing market.  Why?

The last thing we need is an increase in the supply of homes.

We currently have 8 million homes in some stage of default. (This is currently 15% of all mortgages in the country and grows every month)  Estimates show that 80% of this shadow inventory will eventually be foreclosed on and put onto the market for sale.  That is 6 million new inventory homes coming to the market.

In addition, the government's loan modification program shows that 70% of home owners entering the program will re-default.  This is additional shadow inventory that is not currently being calculated in the 8 million discussed above.

Finally you have short sales.  These are homes that are not on the market for sale, current on their mortgages, but are so far underwater that they work out a deal with an investor and the bank before the property hits the MLS.  This is another hidden portion of the total shadow inventory.

The coming supply of new inventory will be staggering.  I wonder what the analysts project this will do to home prices?  Have that factored this into their economic outlooks?   Let's take a look.....

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