From HW:
Whether they like it or not, the nation’s banks control most of the country’s shadow inventory, according to a report Friday from Morgan Stanley.
Even more, properties in imminent default are typically cheaper homes with prime mortgages. The analyst adds that their findings buck conventional wisdom that these homes are either concentrated in the slums of Detroit, or prevalent amongst cardboard cutter McMansion neighborhoods.
The shadow inventory, they say, is the biggest problem for average Americans living in the nation’s major cities.
And, what’s more, the homes are more and more being controlled by the banks, as opposed to Fannie Mae, Freddie Mac or private securitization trusts.
“While agencies certainly maintain control over a large portion of the shadow inventory at just over a third, we can see that the majority of the control over delinquencies is in the hands of the banks, and their share has increased over the past year,” reported Oliver Chang, James Egan and Vishwanath Tirupattur (see chart below):
“This may be because borrowers are becoming delinquent at a faster rate for bank-held loans, but checking transition rates for each controlling party, we do not see a significantly larger change in transitions into delinquency for bank-held loans,” they added.
Of the shadow inventory, 75% are valued below $250,000, showing that McMansions have a small share of delinquencies (see below chart):
Further, the shadow inventory is growing across all of the United States. The analyst expect that more than 8 million liquidations are in order over the next five years before housing stabilizes.
“While hard-hit cities represent a more than fair share of shadow inventory, its distribution broadly encompasses all corners of the country,” said the analysts.
The liquidation of subprime early on in the recession is now being replaced by later delinquencies in prime collateral. The shift in collateral is making the supply imbalance worse for the best part of the credit spectrum.
CoreLogic said in September that based on the shear number of prime mortgages in the market, that foreclosure and delinquency rates would steadily tick upward. Compared to the less than 3.5 million subprime, there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.
“We do see a slowdown in liquidation rates of bankheld loans, suggesting that the increasing share of shadow inventory is due to banks holding onto their delinquent loans longer than agencies or private securitization trusts,” they said.
Jim,
Here in metro Atlanta, a kind of housing depression is happening. Right now housing prices have declined to what they were 11 years ago (2000).
The movement of people around and in and out of the area is taking a big hit. You can move into the area, especially with the over supply of new stuff, and get a great deal, but selling existing homes is more and more difficult.
Metro Atlanta is underwater.
the story begs the following question: If homes <$250k account for 75% of delinquencies/shadow-inventory, then what percentage do these sub $250k homes represent of the total housing stock???
“the story begs the following question: If homes <$250k account for 75% of delinquencies/shadow-inventory, then what percentage do these sub $250k homes represent of the total housing stock???"
Probably a lot. We think of $250K as small 3/2 starter home is a less than desirable location but in many parts of the country $250K would get you quite the bomber. This is a national article and doing a quick look says the median price in the US is $170K so of the homes that are selling 50% of them are less than $170K. If I just had to guess I'd say at least 75% of the national US housing stock is less than $250K. Might be even higher like 85%-90. It's really only the Northeast and the coastal west that consistently has homes valued over $250K.
livinincali – exactly my point, the headline is likely right in line with the total stock of housing so its really much ado about nothing.
Kind of like saying apx 1/2 of people who die are male
there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.
Is the 3% 90d+ a subset of the 6% 60d+? (ie only 3% 0-60d+, plus 3% 90d+)?
I wonder whether it is 6% in the pipeline, or 9%?
Regardless of whether it is 6% or 9%, that is remarkable for “prime”.
I wonder how many financial models would have been using anything more than 1% as an outlier?
What percentage of home owners in the country have any equity left in their homes?
Jim,
I’m wondering if you could do a future post on the state of short sales. I’m curious to get some real world analysis from someone in the trenches. Are banks accepting short sale offers? Does it differ from bank to bank? What about in different price ranges? Are there multiple bids coming in for the lower priced short sale listings?
Any color you can supply would be enlightening.
Thanks
pemeliza, if I recall correctly, something like 33% of all homes are fully paid off. So, they have equity.
Of the remaining 67% that are carrying a mortgage, the most recent data I’ve seen suggests that 25% of those mortgaged homes are underwater.
So, I think most people still have some equity. Those who bought during the bubble years 2003-2007 are probably least likely to have equity.