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Monday, August 22, 2011

Mortgage Delinquencies Grow: Why Housing Is Going To Zero

CNBC reports mortgage delinquencies are growing after the last few quarters showed declines. (See

I have long maintained that there are many factors contributing to continued housing market weakness, and that these factors persisted despite the claim that foreclosure declines indicated a bottoming-out of the housing decline.

The well-chronicled robosigning scandal involving the nation's largest banks and some prominent foreclosure law firms (like the not-yet-indicted David J. Stern) resulted in judges looking askance at court motions that they previously rubber-stamped. This evidently caused the short-term foreclosure filing backlog, not the hoped-for, illusory recovery.

There remain major economic factors plaguing the real estate market. These factors include, in no particular order:

1. Tight and tightening credit as banks ask for higher (20 percent at least) down payments and continue to reject many borrowers altogether.

2. Declining buyer demand, a result of the combination of flat real incomes, persistent high real unemployment (see the Labor Department's U-6 measure of nearly 17 percent) and overall falling confidence in the economic future.

3. An unseen, but palpable, housing glut from homeowners who want to sell and will list their homes once they sense a recovery.

4. Existing in-pipeline foreclosures which reduce valuations, discourage some listings (but see item 3 above, they show up anyway) and further depress price offers; and

5. Declining appraisal prices on the basis of both overly-conservative appraisals from appraisers fearful of being accused of negligence, incompetence or misconduct for misappraising properties, and pressure from banks to be conservative.

A buyer today is likely anticipating future price declines of at least ten percent from whatever they pay. That number is, of course, at a discount from the seller's list price.

But watch the banks. They may cry poverty but they know how to make money. When they ask for 20 percent down, that means they think the value could drop by that amount. They are not in the business of losing money through aggressive lending. It's not 2006 anymore.

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis

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