From the Housing Wasteland, All Roads Lead to the Abyss

Posted by Jim DeBellis on June 14th, 2011

The American housing market is officially at the North Pole.  Not only is the market a frozen ice-covered tundra, but no matter which direction you look, everything is going South.  Take a look at these numbers compiled from the Home Buying Institute and Total Mortgage:

• The average value of a home has now dropped 33 percent since the slide began in 2006.  That’s five consecutive years of declining home values, which is unprecedented. (Ain’t it great to be alive at historical moments?)  The housing market is always the shining light that leads us out of economic recession, but this time it’s dragging us down, and nobody seems to know how far away the bottom is.

• 2.2 to 2.6 million homes are in some stage of the foreclosure process, 2 million more are extremely delinquent and in the pipeline as potential new foreclosures, and 11 million homes are worth less than the balance owed on their mortgages (almost a quarter of all mortgages)—with another 2.4 million at break-even or with up to 5 percent equity (with values still falling).  Add to that that the number of people who will walk away from their mortgages this year is increasing sharply, and it looks like a big pile of distressed homes will saturate the market for years to come, causing valuations to decay even more.

• Owner equity in housing has fallen from 61 percent in 2001 to just 38 percent after the first quarter of 2011.  $14.9 trillion in equity wealth in 2006 has plummeted to just $6.3 trillion at the end of last year.  That’s $8.6 trillion in American homeowner’s wealth—$28,000 for every man, woman, and child in the country—that has just evaporated.  At more than $100,000 for every family of four, there are millions of people wondering where money for college, retirement, and just basic needs will come from.

• The average time for a bank to take a house through the foreclosure process has increased from 151 days in 2007 to 400 days today.  There’s been an increase of 60 days in the just past year, thanks in part to the robo-signing fiasco.  Of course, it’s not like buyers are waiting in line for the REOs to come to market—no one is buying, which means that the inventory just keeps piling up.

• Optimistic estimates indicate that it will take five years for the market to absorb all of the excess inventory—but how can it absorb it at all when the number of vacancies is growing faster than sales?  It takes first-time buyers to get homes off the market, because the rest of the market is just “musical houses” with people selling one house and buying another.  Banks aren’t interested in first-time buyers, and the first-timers aren’t interested in buying.  It will take investors to buy up the housing stock and get the market back to something like normal.

So, it seems pretty certain that housing isn’t going to lead this recovery.  It’s going to take more jobs back home in America, a little more confidence and spending, a healthy dollar, and some common sense.  Maybe we should just ask Santa for those things, since we’re in his neck of the woods now.