Friday, May 29, 2009

I've Fallen and I Can't Catch Up

I commented yesterday that one in eight home borrowers in the US are behind on their mortgage payment. It's far worse in Florida, as about one in four borrowers was late on their mortgage or in foreclosure in the first three months of the year.

Remember when I told you to go outside and count the number of houses on your block? SURPRISE! Double the number of your neighbors from last night that are either delinquent or in foreclosure. If you have 20 houses on your street and they have a mortgage, 5 of your neighbors are in trouble. Which means you are in trouble.

An additional 99,000 Florida borrowers went into foreclosure in the first three months of the year, bringing the total number of home loans in some stage of the foreclosure process to 374,134. With 11 percent of its home loans in foreclosure, Florida ranked first in the country for defaults and was the only state in double digits. The rate was up roughly 2 percent from the previous quarter. To put it in perspective, the national rate was 3.85 percent, up about half a percent from the previous quarter, a record high. Almost half of all sub prime ARMs are past due or in foreclosure. In Florida, New Jersey and New York the number is above 55 percent.

At the end of March, about 71 percent of owners who bought in Miami-Dade and Broward counties in the past five years were underwater, according to Just like I said yesterday, we are back to 2003 prices, on our way back to 1999 prices

Notice you have not heard a peep this year from either the FAR or NAR about the "Spring Buying Season", because we haven't had one. With the Summer here, potential families moving have already done so, if they could have.

Take a walk around your neighborhood this weekend. Go to Zillow or South Florida Block Shopper and look up the home sales for the past few years. When the prices were going up 20% a year, no one cared about affordability and how these people could afford the homes or how they financed them. We now know up to 75% were ARMs or other toxic loans.

And what about these government programs that threw hundreds of billions at this? Studies show between 65% and 75% of modified sub prime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.

This is not complicated folks. Houses are still too pricey. Those people that bought houses and either tried to flip them and got caught or simply couldn't afford them when they bought them, are not going to continue to pay regardless of any modification if they are 20,30, 0r 50% underwater! How difficult is this to understand?

Until we return to 1999 prices ( perhaps 1994 if this keeps up), purge the system of excess inventory, and sound lending practices, I do not see any "bottom" in sight. For those of you that like to see things in pictures, this chart by Robert Shiller is one of my favorites.

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At 7:55 AM, Anonymous Anonymous said...

Very interesting, and mostly accurate. The one significant fact that you left out is that in Florida about 1/3 of the homes here actually have NO mortgage on average(more than that in many neighborhoods - 100% with no mortgages if you happen to live in a co-op building for instance, but on average 1/3 would be the rule). It's still a once in a lifetime mess out there, but when counting neighbors, don't assume they all have mortgages since a significant number do not. Florida is "Heaven's waiting room" after all, so many homeowners here haven't had a mortgage in a long time. Have a great day!


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