US Housing saw an increase in sales activity in April -as expected — since April lies in the peak of the annual housing sales cycle. Plus this April 30th marked the deadline for home purchasers to benefit from the extended home buyers credit. Housing remains one of the core impediments to US economic growth. Given that we’re now living through a hangover period that follows a housing boom, this should not come as a surprise. Here are some recent statistics on the state of the US housing market, and reason for concern:
- There are 1.1M foreclosed homes on bank balance sheets.
- There are 1.8M more homes currently going through the foreclosure process.
- And most disturbingly, there are over 3M homes that are more than 60 days past due on their mortgage payments. Many of these will end up adding to the foreclosure inventory unless employment picks up radically.
- There are over 19M empty houses and apartments in the US -5M higher than the norm.
The data suggest housing is likely to lose the gains made in the past year, and probably give up a little more as the mountain of unsold housing inventory grows.
This has several important ramifications:
- First, as housing values fall further, many households will be under water – that means they’ll owe the bank more than the house is worth. Currently roughly 20% of houses with mortgages in the US are under water. As house prices fall again, this figure will increase. When home owners get in this situation, many decide to stop paying their mortgage and wait for the bank to either foreclose, or come to them to work out a deal to lower their loan amount. This eats into bank profits and increases their need to be more conservative. That means they’ll further reduce lending – which causes the economy to contract further. It’s a vicious cycle.
- Second, keep in mind that in order to obtain the recent gains in housing prices, we had prices 30% lower than they were in 2008, record low interest rates, the Fed had to buy $1.25T in Fanny & Freddie mortgage bonds, and the federal government gave people money to buy homes via a tax credit. Does any of that sound sustainable?
Housing is still seen as a leading economic indicator. It is not flashing green right now.