Actually, given the utter failure to replace the destroyed jobs over the last two years in this economy, the bigger surprise may have been that the numbers were dropping — until now. Bloomberg reports that the percentage of home mortgages with one or more overdue payments rose in the second quarter, the first such increase in more than a year. It might reflect the decline of the economy in the prelude to “Recovery Summer,” but it’s probably more useful as a signal of another wave of foreclosures:
The percentage of U.S. mortgages with one overdue payment rose in the second quarter, the first gain in early delinquencies in more than a year, as economic growth slowed and jobless claims rose.
Home loans overdue by a month rose to 3.51 percent, from 3.45 percent in the first quarter, according to a report today from the Washington-based Mortgage Bankers Association.
The gain suggests a slowing economy may increase foreclosures as mortgage holders lose their jobs, said Jay Brinkmann, chief economist of the group. New unemployment claims, measured as a monthly average, rose throughout the second quarter after falling in most of the prior period, according to data from the Labor Department in Washington.
“As we work through the bucket of troubled loans, we’re seeing an increase in a new crop of troubled loans,” Brinkmann said in an interview. “It’s primarily driven by the jobs market. It still takes a paycheck to make a mortgage payment.”
It’s an incremental increase, mainly significant for its direction and not its magnitude. Absent other indicators, it would probably not mean much at all. Furthermore, we don’t necessarily have enough context to know where a panic level is; it’s possible that this indicator fell far enough that a small rebound was inevitable, as foreclosures weeded out the failing borrowers and the averages returned to normal.
In fact, the news is a little more mixed — but still not good — when looking at the full summary from MBA:
“These latest delinquency numbers contain a mixture of somewhat good news and somewhat bad news. The good news is that foreclosure starts are down and the inventory of homes anywhere in the process of foreclosure fell for the first time since 2006 and had the largest drop since 2005. Loans 90 days or more past due, the largest share of delinquent loans, also fell. The fact that both the 90+ delinquency rate fell and the foreclosure start rate fell means that a significant number of these seriously delinquent loans have been successfully modified and reclassified as performing, current loans,” said Jay Brinkmann, MBA’s chief economist.
“The disappointing news is that, after declining since the beginning of 2009, the rate of short-term delinquencies is going up and the increase in these short-term delinquencies may ultimately drive the foreclosure measures back up. The percent of loans one payment behind had peaked in the first quarter of 2009 at 3.77 percent and fell to 3.31 percent by the end of 2009. Unfortunately that rate has now risen to 3.51 percent. The causes are likely two-fold. First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance. The number of first-time claims fell through most of 2009 but leveled off in 2010 and have started to rise again. This increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit.
“Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story. Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers. Until we see the increase in the number of households that comes with an increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak,” Brinkmann said.
In other words, the collection of indicators gives this particular increase a little more weight. While some of the longer-term delinquencies fade away, we are seeing a new wave of potential trouble if jobs don’t start opening up for the unemployed, and soon. Note too that Brinkmann points out the failure of existing foreclosure-avoidance government programs because they have been treating the symptom while ignoring or deepening the disease.
We’re stuck in a cycle of futility, where government interventions create debt and uncertainties that dissuade investors from starting and expanding businesses, and the government thinks that more intervention will solve the trouble. The results of Wreckovery Summer are demonstrating just how badly we have blundered in the wrong direction.
It was a busy week ...
The NAR reported:
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.Click on graph for larger image in new window.
...
Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June.
This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.
Sales in July 2010 (3.83 million SAAR) were 27.2% lower than last month, and were 25.5% lower than July 2009 (5.14 million SAAR).
The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.
Although inventory increased from June 2010 to July 2010, inventory decreased 1.9% YoY in July. The slight year-over-year decline is probably because some sellers put their homes on the market in the Spring hoping to take advantage of the home buyer tax credit.
Note: Usually July is the peak month for inventory.
A normal housing market usually has under 6 months of supply. The following graph shows the relationship between supply and house prices (using Case-Shiller).
This graph show months of supply (through July 2010) and the annualized change in the Case-Shiller Composite 20 house price index (through May 2010).
Below 6 months of supply (blue line) house prices are typically rising (black line).
Above 6 or 7 months of supply, house prices are usually falling. This isn't perfect - it is just a guideline. This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes.
The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 276 thousand. This is an decrease from the record low of 315 thousand in June (revised down from 330 thousand).
This graph shows New Home Sales vs. recessions for the last 47 years.
And another long term graph - this one for New Home Months of Supply.
Months of supply increased to 9.1 in July from 8.0 in June. The all time record was 12.4 months of supply in January 2009. This is still very high (less than 6 months supply is normal).
The 276 thousand annual sales rate for July is the all time record low (May was revised up a little). This was another very weak report. New home sales are important for the economy and jobs - and this indicates that residential investment will be a sharp drag on GDP in Q3.
Here is my post on the MBA Q2 delinquency report: 14.42% of Mortgage Loans Delinquent or in Foreclosure . This graph (from the earlier post) shows the delinquency rate by "bucket" (30 days, 60 days, 90+ days, and in foreclosure process):
The total percent of loans delinquent or in the foreclosure process declined only slightly in Q2 from Q1 - and the rate is the second highest on record.
Loans 30 days delinquent increased to 3.51%, and this is about the same levels as in Q4 2008 (slightly below the peak of 3.77% in Q1 2009).
Delinquent loans decreased in all other buckets - especially in the 90+ day bucket. MBA Chief Economist Jay Brinkmann suggested the decline in the 90+ day bucket was because of some successful modifications - since the lenders reported the loans as delinquent until the modification was made permanent.
The second graph shows the delinquency rate by state (red is seriously delinquent: 90+ days or in foreclosure, blue is delinquent less than 90 days).
Clearly Florida and Nevada have a large percentage of loans delinquent or in foreclosure. But the delinquency problem is widespread with 36 states and D.C. all having total delinquency rates above 10%.
With house prices falling - and growth slowing - the delinquency rate will probably increase later this year.
Here is my post CoreLogic: 11 Million U.S. Properties with Negative Equity in Q2
This graph shows the negative equity and near negative equity by state.
Although Nevada, Arizona, Florida, Michigan and California, have the largest percentage of homeowners underwater, there is a negative equity problem in most states. In 33 states and the D.C., 10 percent or more of homeowners with mortgages have negative equity.
Best wishes to all.
make money from home without stuffing envelopes
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