These are staggering numbers. I heard a lecture from an analyst from Anderson School of Business at UCLA which was a bit gloomier than this but these are some of the gravest predictions I have seen in print. Will we see more aggressive programs from the administration to combat the forecasts? The various moratoriums so far have had less than robust results. A contact at Wells Fargo tells me they have had less than a 1% success rate in loan mods. I can't see a substantial turn around until at least 2013, any thoughts?From Housingwire.com.By AUSTIN KILGOREAugust 6, 2009 4:18 PM CSTDeutsche Bank (DB: 66.81 +3.39%) believes continued declines in home values will increase the number of US mortgagors with negative equity from 14m in Q109 to 25m in Q111.According to a report Deutsche released this week, the 25m represents a projected 48% of all US mortgages. While subprime and option adjustable-rate mortgages (ARM) are the biggest source of underwater borrowers in the current market, Deutsche said a larger percentage of prime conforming and prime jumbo borrowers will join the fray.Prime conforming and prime jumbo will make up 79% of all US mortgages and Deutsche estimates 41% of conforming and 47% of jumbo will be underwater, up from current levels of 16% and 29%, respectively.This rapid influx of underwater borrowers will have a significant impact on default rates. In addition to future underwater borrowers being forced into default from a “life event” — unemployment, divorce, disability, etc. — Deutsche warned others may “ruthlessly” or strategically default.Increased defaults in the middle class will suppress consumption, added Deutsche, further slowing housing recovery.It’s hard to predict exactly how high the default rates will go. The current housing recession is unique in that it was brought on and perpetuated by a number of factors — unstable loan products, crashing housing prices, and unemployment, among others. Deutsche cited a study of the Massachusetts housing decline of the late 1980s and early 1990s that showed less than 7% of underwater borrowers defaulted as perspective on the default rate for underwater borrowers.But in the early 1990s, borrower and loan product quality were significantly better, the home price decline wasn’t as severe, and unemployment was lower. Deutsche said the 7% experienced in Massachusetts should be the floor — a best-case scenario — for the surge of underwater borrowers it expects in 2011.Borrowers with loan products with already high underwater rates will only get worse.By 2011, Deutsche predicts 89% of option ARM borrowers will be underwater, up from 77% in 2009. The rate of underwater subprime borrowers will increase from 50% to 69%, and underwater Alt-A borrowers will increase from 49% to 66%.An important factor to consider is how deep underwater borrowers will be, and it depends on their loan type.For prime conforming borrowers, Deutsche predicts the number of borrowers with negative equity — loan to value (LTV) between 105% and 125% — will virtually equal the number of borrowers with what it calls “severe negative equity” — LTV over 125%.But Deutsche expects the 89% of option ARM borrowers underwater to be split with most — 77% of total option ARM borrowers — holding severe negative equity. For underwater prime jumbo loans, more borrowers will have severe negative equity — 29% of the combined 47%.The split for underwater Alt-A borrowers is expected to take an opposite proportion, with 49% of all Alt-A borrowers in negative equity and only 18% in severe negative equity. Underwater subprime borrowers will face a similar breakdown.
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According to a recent report by Managing REO Online Magazine dated July 9, 2008 Volume 3 Issue 8
Link: (http://www.managingreo.com)
“Housing starts in 2008 are expected to be 36% lower than 2007 levels, creating three straight years of decline.”
Contrary to what you may hear from bullish or optimistic real estate industry guru’s the state of our national economy, credit crisis, high housing inventories, fall of the sub-prime market, closing bank lending operations and finally a lack of an effective energy solution to soaring gas prices will continue to plague the minds of credit worthy buyer’s and keep them from purchasing a home.
In most markets we are seeing increased inventories due to continued foreclosure. In Tennessee alone at the start of 2nd quarter 2008 we saw foreclosure housing inventories totaling approximately .66% and at the end of 2nd quarter it was up to 1.53%, which is a dramatic jump. To put this in perspective, this jump equates to almost a third of the entire housing inventory across the state.
As you can imagine, with this much inventory on the market, housing prices are falling. Comparably, Tennessee hasn’t suffered nearly as bad as other states like, California, Florida, Nevada and Arizona however, try telling that to the homeowner here in Tennessee who is out of a job and has found work in another state. Not to mention, if he bought his home in the past 3-5 years, he may not have enough equity in the home to sell it for the amount owed due to falling home values. Short sales or even foreclosure becomes the only solution for many.
So, if you are ready to buy and are credit worthy, deals are out there to be made! Buyer’s can afford more home now than they have been able to in the past 5-7 years. If you plan on staying in the home for at least 5 years, most likely you will be able to weather out of this real estate storm and end up big winner when ready to sell. If you’re looking at purchasing a home now and may end up moving in the next 24-36 months, you might be off better to rent. In my opinion, it is going to take 2-3 more years before we see the light at the end of this tunnel.
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