Are There Over 7 Million Foreclosures Coming?

This article was posted by Steve Harney.   It is excerpted with permission.  The issue of Shadow Inventory is already impacting the real estate industry throughout the country and is definitely a factor in the Greater Grand Rapids Mi area.    The percentage of homes Sold in distress sales  through during the month of June 2010 for the Grand Rapids was slightly below 50% of the total volume of transactions.  The total number of homes Sold in June (907) was already significantly lower than the two years prior.

It is critical that homeowners who intend to Sell their homes be aware of this issue when it comes to pricing a property for Sale.  As the article notes, there are a number of factors impacting the Shadow Inventory and as this is a fairly fast moving situation,  it is likely that there will be some significant variations and shifts in the days ahead.  If you’re interested in a more detailed analysis or a market trends analysis about the homes in your neighborhood, please contact Audu Real Estate.

**************************************************************************************************************************

Are There Over 7 Million Foreclosures Coming?

Article by Steve Harney ~ July 13, 2010

There have been some extraordinary numbers being bantered about when talking about the number of foreclosures that will be coming to market over the next 18 months. Different studies have estimated that number to be between 5-8 million. Let’s take a look at one of these studies today and see how these totals are being calculated.

The Financial Analysis Journal last month posted an article titled Dimensioning the Housing Crisis in which they break down how they arrived at the number of 7.13 million foreclosures about to come to market.

When looking at foreclosures, it is important to realize we are not talking about only those homes currently owned by banks (REOs) but instead the probable number that will be owned. To decipher that number, we must look at two things:

  1. The percentage of foreclosures and the percentage of homes in delinquency
  2. The probability of liquidation (cure rate)

THE PERCENTAGES

The article breaks down the percentage of foreclosures and the percentage of homes in each delinquency category:

At the end of the third quarter of 2009 (last data available), a staggering 14.1 percent of mortgages in the MBA survey were in some stage of delinquency: 4.47 percent of units were in foreclosure, another 4.41 percent were 90+ days delinquent, 1.67 percent were 60 days delinquent, and 3.57 percent were 30 days delinquent.

These percentages put the actual number of homes in danger at 7.89 million.

THE CURE RATE

Cure rates measure the percentage of loans exiting delinquency and returning to their current payment status each month. These percentages have plummeted over the last several years as the housing market has suffered.

The cure rate is most negatively impacted by unemployment and negative equity. Neither of these are expected to improve in the near future.

THE FINAL TALLY

Below is a table using both the percentages and the cure rates to determine the number of potential foreclosures coming to the market.

The first column shows the percentage of homes in each category of delinquency. The middle column are the current cure rates for each category. The last column is the total percentage of each category that will wind up as a distressed property.

The study estimates 7.13 million distressed properties will come to market.

What does this mean to you?

Whenever there is an increase in supply of an item, there is downward pressure on pricing. The houses coming to the market will be sold by the banks at discounted prices. Home values will be impacted dramatically.

To read additional comments on this blog or other articles by Steve Harney, please visit his site.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s