Analysts: Foreclosure Moratoria to Cause REO Slowdown in 4Q10
While widespread foreclosures have resulted in the flood of real estate owned properties for sale on the market depressed housing prices over the past three years, analysts at Credit Suisse project the recent slowdown in completed foreclosures brought on by robo-signing-related foreclosure moratoria will result in even greater decreases in home sales in 4Q10.
REO properties account for an estimated 25% share of all home sales, Credit Suisse estimates. Existing home sales were down in all 50 states in 3Q10, with double-digit year-over-year declines in 47 states, the result of weakened demand after the homebuyer tax credit. In new construction, housing starts in October were at a seasonally adjusted annual rate of 519,000, down 1.9% from the October 2009 rate and 11.7% below September’s rate, according to the latest Census Bureau and Department of Housing and Urban Development numbers.
Even with the temporary lull in new REO properties hitting the market, the impact of distressed sales on home prices will continue. Credit Suisse said single-family prices fell 0.2% yr/yr in 3Q, with declines in 28 of the top 50 markets, up from 21 markets in 2Q. “We expect further declines in the coming quarters as pricing pressures intensify due to weak demand and high inventories,” the report said.
Perhaps the biggest contributor to record housing affordability isn’t low prices or high inventories, but the historically low mortgage rates.
Credit Suisse said its affordability index is at an all-time low at 13.4% in 3Q10 compared to 14.9% in both 3Q09 and 2Q10. The index tracks the monthly mortgage payment on the median-priced home relative to median income and has a 17-year average of 20%.
The low index reading is the result of low mortgage rates, the analysts said, as rates are a critical factor of home buying affordability. A 10-basis point change in rates has an impact equivalent to a 1% change in home prices. Mortgage rates in 3Q10 were down 71 basis points from 3Q09 and 39 bps from 2Q10.