United States third quarter foreclosure rates rose substantially, 23 percent higher than last year, according to RealtyTrac Inc. Almost a million homes received a default, auction notice, or were repossessed by banks in 2009 quarter 3. About one in every 136 U.S. households received a filing, the highest since January 2005. Analysis by the Amherst Securities Group LP in New York estimate that a “shadow inventory” of 7 million properties are in the foreclosure process or are likely to be seized, up from 1.27 million properties in 2005.
We note that the housing aspect of this recession is different than other recent recessions. What has typically happened in other recent recessions is that income and job losses caused a housing slowdown, and this happened a bit later in the cycle. What has happened in this recession is that the economic problems started in housing, starting earlier in the cycle compared to the typical recession.
A question might be, will this housing slowdown end sooner or later? We believe that the housing slowdown will persist just as late if not later compared to the typical recession. This is because there is still a large quantity of housing inventory that will come to market as a short sale or a foreclosure. In addition, most forecasts (including ours) call for the number of unemployed to remain relatively high for some time. As job creation remains negative or low and as unemployment rates remain high foreclosure rates will remain high. More households who have begun to default will find it difficult to save their home, while new households will face increasing difficulty in maintaining home payments. In addition, ongoing foreclosures and short sales will contribute to further declines in home values. And these factors will contribute to weak growth in household sector wealth. These factors are part of why we remain bullish on housing and the economy for some number of quarters to come. Finally, the implication is that the housing slowdown in this cycle will be longer than in most cycles.