107 Is a Bad Number


Highway to Hell?

Inquiring minds are stunned at what the WSJ is reporting on the backlog of homes banks have in foreclosure and shadow inventory…

107: How many months it would take to sell banks’ current and shadow inventory of foreclosed homes.

Banks’ vast pile of foreclosed homes doesn’t appear to be diminishing. That’s a troubling sign for the future of the housing market.

Back in April, this column tallied up all the foreclosed homes sitting in banks’ inventory, as well as the “shadow” inventory of homes in the foreclosure process or on which owners had missed at least two mortgage payments. At the time, we reported that at the current rate of sales, it would take 103 months to unload it all.

Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.

That’s nine years of inventory at the current pace of sales! Yet, President Obama keeps telling us that the economy is “coming back”.

Remember the dreaded ‘two hump camel’ graph? Well, thWSJ article unknowingly makes reference to it:

Over the summer, banks appeared to be making some headway. The government’s mortgage-modification program helped some people get current on their payments, taking their homes out of the foreclosure pipeline. At the same time, homebuyer tax credits helped boost sales. Combined real and shadow inventory fell to 91 months of sales in May.

Lately, though, a new wave of defaults appears to be coming in, in part related to the high rate of failures on government modifications. As of September, some 1.9 million homeowners had missed one payment on their mortgages, up 14% from March. Meanwhile, home sales have slowed sharply with the end of government stimulus.

Yes, over the next 14-15 months, this inventory will rise due to the Alt-A foreclosures coming shown in this graph:

So many more foreclosures to go before we are past this crisis

It is going to be a dark ride.

For California, a Jerry Brown administration will most likely raise taxes the only place left with money…repeal Prop. 13 and raise property taxes. It is the only thing left.

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