Delinquencies are down because prices are up. This has enabled people to sell or refinance at lower rates. Prices are up because interest rates have been kept at artificially low levels (for far too long!), and because investors have been chasing yield all around the globe…and have found U.S. housing to be one of the better bets in a world where yields do not match risks.
Inventory has been kept off the market for quite a few years now, and investors who’ve had access to “back-room foreclosure deals” have made agreements with lenders to keep properties off the market a specified period of time, giving the artificial impression that inventories are low/declining via “natural” means. These homes/statistics are not visible to the general public.
Various investors have been piling into the RE market for the past few years, many of them entering a market in which they have no experience, and in which there is a LOT of existing and future competition (all those other investors doing the same thing). In many areas, investor demand has made up 30-50% of the housing demand. More investors than ever have been getting into the “buy to rent” market, and they are over-estimating returns on these rentals for a variety of reasons. Just like I’ve warned in the past, those rosy returns are not coming in many cases. The smart money has already been moving to the sidelines.
So…if you remove ~20%++ of the demand from the market, and add to that the fact that many of these funds will be rushing to put homes on the market once the market turns down, (let’s not forget that interest rates are still at/near historical lows, and more likely to go up than down over the long term), it would seem that the risks to housing prices would be greater than many are anticipating.
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While this report only includes data through 2011, it shows that incomes and health insurance coverage have been declining since 2008, while poverty rates have been increasing. Yes, some segments of our society are doing better than they were in 2008, but they are few and far between.
Again, the unemployment data doesn’t tell the whole story because it does not include discouraged workers (see links in my post above), those who’ve dropped out via disability (an all-time high, I believe), and those who are under employed in various ways (part time vs. full time, or working in positions well below what they were doing in the past).
We are eyeball deep in an even larger credit/asset price bubble, and nobody seems to see it. Just because we’ve largely shifted it from private to public debt does not mean that we are in a better place today, IMHO. Of course, it just makes it easier to blame the public sector workers for the crisis created by the financial sector…but that’s a whole ‘nother issue.
