The foreclosure crisis has entered a new phase: The number of properties entering the foreclosure process has dropped, and now nearly matches the number of repossessions.
The number of homeowners falling enough behind on their loans to attract initial notices of default was down 30% in August, RealtyTrac said Thursday. Eventually, that should translate into fewer people losing their homes.
But lenders repossessed more than 95,000 homes -- a record -- and that was up from 76,000 a year ago.
RealtyTrac spokesman, Rick Sharga, said the initial default rate should be higher, given the numbers of borrowers who have missed one or two payments. Normally, when a third payment is missed, lenders take immediate action.
"It appears that lenders are allowing delinquencies to go on longer before they issue notices of default," he said.
So default notices are down, but bank foreclosures are way, way up. Banks are back to letting default notices slide again because actually foreclosing on the home locks it in as a loss for the bank. Banks don't want foreclosed homes either...because they get stuck with an asset they can't sell, and its value loses money.
The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.
Shadow inventory -- the supply of homes in default or foreclosure that may be offered for sale -- is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.
“Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”
The era of home equity powering the economy is dead and gone for good. It will be decades before home prices are back where they were in 2005-2006, and they may never get there again. Home prices at the end of this decade will be about where they are now, if not a bit less, and that will be after a long, slow climb in the second half of the Teens after we hit bottom in 2013-2014. Frankly we may have another 15-20% drop in home prices to go, and that's going to put millions more homeowners underwater.
That of course means another lost decade as a best-case scenario, and a full-blown depression as the most likely. You don't want to know the worst-case scenario, trust me (think Weimar Republic). Buckle in, folks. The ratcheting downward of our standard of living is now baked into the system.
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