Sunday, April 8, 2012

Real Estate Prices, Equity, Jobs Fall: Shadow Inventory Risies

Corelogic released their US home price index for the month of February this week showing that prices have reached a new post bubble low.


The following chart shows the collapse of home equity for Americans since the bubble burst in 2006. Americans have now lost close to $122,000 per household in equity that they were counting on for retirement. Home equity prices are now back to 1968 levels, essentially erasing any "value" in home ownership since that point.

The next chart shows the loss in construction jobs since America's depression began back in December 2007. Almost 1 out of every 3 jobs in construction have disappeared.


Where do we go from here?  Reuters released an excellent article this week discussing what is in store for US real estate foreclosures (link below). Back in late 2010 the real estate market was hit with the "robo-signing" scandal when it was discovered that documents were fraudulently created to sell multiple issues of the same mortgage to investors. Over the past 18 months there has been a massive slow down in foreclosure processing while banks have tried to work out the messy details (you cannot foreclose on a home "legally" unless you know who actually owns it).

The following chart shows data released from RealtyTrac on the the rate of foreclosure filings pre-robosigning and post-robosigning. You can clearly see the drop off moment when close to 100,000 less homes per month began the foreclosure process. The consequence: a longer period of time for those Americans living payment free (economic stimulus) and an increase in the supply of shadow inventory (postponing coming price declines).


The process a home moves through before arriving on your street as a bank owned property for sale is known as the distress inventory pipeline, seen in the graphic below. The first two columns are unseen in the MLS listings (which are falling in some areas and artificially signaling a recovery). Some of these homes may have people living in them that have the good fortune of living payment free every month.


This graphic does not include the homes that are underwater and still making their mortgage payments. How large is this pool of homes?

Zillow reports that 28% of homes with a mortgage are now underwater as of the end of March.  Please re-read that statistic. Here is an excellent way to visualize the growth in size of this underwater pent up future supply (graph below does not even include second liens on homes).
For much more on the real estate market see 2012 Outlook: Residential Real Estate.

Reuters Article: Americans Brace For The Next Foreclosure Wave

h/t: Calculated Risk, Dr Housing Bubble, Zero Hedge, RealtyTrac

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