October 24, 2006 at 11:08 AM #7770powaysellerParticipant
In Calculated Risk: Significant Foreclosures Predicted, CR quotes from the Milwaukee Journal Sentinel:
“Up to 4% of America’s mortgaged homeowners might lose their homes to foreclosure in coming months, one of the nation’s largest lenders predicted Monday, as those homeowners find themselves trapped by heavy debt and the housing slump.
That’s four times worse than the historical average of 1 in 100 mortgaged homeowners who fail to keep up payments, said Michael W. Perry, chairman and chief executive officer of Indymac Bank of California.”.
In the comments, Tanta (a savvy contributor regarding mortgages – probably works in the industry) writes “According to the 2005 American Community Survey, there are 50,462,973
mortgaged owner-occupied housing units….” So 4% of 50 mil = 2 million defaults, but that number is conservative, as it excludes mortgaged rental properties.
Commenter Kirk points out that 2 million homes is a 1-month supply of housing. We have to keep in mind that the quality of the inventory has some effect on the pricing movement too. Prices are affected by the number of homes for sale *and* the quality of that inventory. If we have a 1-month supply of national housing stock that is in foreclosure, the pricing pressure downward is going to be huge. I don’t know how to calculate it, though.
Tanta then calculates that a 10% loss to the lenders is $37 billion. ($187,100 is the avg. mortgaged home x 10% loss to lender x 2 million homes). That is assuming the lender loses 10% on average for each home.
So if anyone cares to argue with me about the foreclosures, go ahead. However, I think these estimates are conservative.
One more thing: we haven’t even discussed the effect on people’s retirements from these foreclosures, directly and indirectly. If you’re a baby boomer who plans to sell her/his house in 2007 – 2010, to cash out and downsize, how is your retirement going to be impacted by 2 million foreclosures, all acting to lower the equity in your home, and rob your retirement portfolio? This is going to bring Enron to just about every baby boomer. I’ve heard too many people tell me lately that their home equity is their retirement. What will happen to nursing home vacancy rates when the elderly can no longer cash out on their homes to move into that nice assisted living facility? What happens to baby boomer retirement plans when they lose a chunk of equity in their home? What will be the social impact of higher rates of suicide, alcoholism, and more cash-strapped families having to support their parents into retirement?October 24, 2006 at 12:02 PM #38367PerryChaseParticipant
powayseller, nice to see you back with hard hitting news. 🙂
Wow, I need to think about this one a little more.October 24, 2006 at 12:34 PM #38370powaysellerParticipant
I wanted to respect the request that I post less, and wanted to let the forums evolve without me. So everyone can decide for themselves if this has been beneficial.October 24, 2006 at 1:52 PM #38380PDParticipant
Powayseller, you provide good content to the site. Thanks for the link.October 24, 2006 at 3:38 PM #38387lamoneyguyParticipant
Good find PS. One note. Kirk was not saying that 2mil was a one month supply, meaning that 2 mil units are sold in an average month, rather he was saying that 2 mil represented the number of new completions (newly built houses). However, even that number was vastly overstated. He was corrected by another commenter who noted that the 2mil figure was the annual number of completions.
Anyway, a long way of saying that this is going to be a painful process for many.October 24, 2006 at 4:29 PM #38390no_such_realityParticipant
As a side note, in the OC Register on Sunday, there was a little excerpt on the Real Estate licensing exam.
They still have to rent out the convention center to do it, but of more interest was the flat stats:
1 in every 50 Californians is licensed for Real Estate.October 24, 2006 at 4:34 PM #38391AnonymousGuest
I just want to say that I am happy that you have decided to stay and post after all. I am also somewhat embarrassed to admit that I have developed an intellectual crush on you. I doubt that this crush is beneficial.
MOctober 24, 2006 at 8:01 PM #38396sdduuuudeParticipant
Hey powayseller. I’m happy to have you back too. Never wanted you to disappear. Thanks for letting others take the reigns for a while. Much appreciated.
If 1 month of inventory is dumped on the market in 5 days, that’s a problem because it would double the months of inventory. If it gets dumped on the market over the course of 10 months, it isn’t so bad. The months of inventory would only be affected by 10%.
I’m not picking on PS, but on the article: The claim for an unspecified number of months doesn’t do anyone any good. How many friggin months is it?
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