Mortgage delinquencies have probably peaked, but not foreclosures, two economists said at the Midwinter Housing Conference in Park City, Utah, earlier this month.
Even by optimistic standards, the total number of houses in the foreclosure process won't return to 2008 levels until mid-2014, Herb Blecher, a senior vice president in Lender Processing Services' applied analytics division, told the conference.
"The long-term view puts recent improvements in perspective," he said, noting that more than 4.3 million loans are either already in foreclosure or just a step away. "New problem loans are on the decline, but remain twice the worst levels of 2005."
The LPS executive, who is responsible for the firm's loan data products, including the McDash database that tracks the performance and characteristics of nearly 70% of all outstanding mortgages, reported that the percentage of seriously delinquent borrowers who have not made a payment in more than a year continues to rise.
In December, the latest month for which data is available, a third of all 90-day delinquents hadn't made a payment for 12 months or more, according to LPS. And the company's best guess is that the number of borrowers who are at least three months behind will remain above the 1 million level for 2.5 to 3.5 more years.
"The volume of loans rolling to seriously delinquent status beyond 90 days is still more than twice the number of foreclosure starts," Blecher said.
Worse, perhaps, foreclosure starts outnumber foreclosure sales by a factor of 4-to-1, he also said. As a result, the inventory of foreclosed homes is likely to rise above 1 million and remain above that benchmark through 2014, he suggested.
And it's not "repeat foreclosures" that's the problem. Rather, in seven out of 10 instances in which foreclosure was initiated, they were new to the process.
Meanwhile, Fannie Mae's chief economist, Doug Duncan, told the meeting that while he expects to see house sales increase this year, the new home sector isn't likely to return to what he called "normal demographic levels" until 2014 at the earliest.
"Real estate continues to struggle for stability," the economist said. "The average household is nowhere near confident of its financial situation, and is therefore in no hurry to buy a home."
That's not to say folks don't want to own houses, Duncan added. They do. But they are delaying their plans until they improve their credit situations or believe they can afford to pay the cost of carrying a home.
Consequently, he said, ownership rates are likely to trend down even further, "settling down" to a 64-65 percentage among all households.
The Fannie Mae economist said slower household formations and declining interstate migration are both signs of weakness in demand. So, while the fundamentals of homebuilding are slowly improving, they have "a long way to go" before that segment of the housing market returns to normal.
Regarding foreclosures, Duncan said the real wild card will be the number of underwater borrowers who ultimately decide to throw in the towel and walk away.
The good news on that front, he added, is that while "lots of folks owe more than their homes are worth," those with significant negative equity of 15% or more and who are considered the most likely candidates to strategically default are concentrated in just five states—Nevada, Arizona, Florida, Michigan and California.
