Thursday, April 8, 2010

Distressed Home Sales, Mortgage Delinquencies and ARMs Maps:

Distressed Home Sales Figure:

Source:First American Corelogic

I'd like to get your Attention to increasing in number of home short sells. It is obvious if this trend continues what effects could have on prices in near future. I was a critique of $8000 tax rebate and called it waist of money, figure above is the prove, that I was right to call it "useless". Please note that $8000 tax rebate could not do much to help the housing market the increase in short-selling is the prove of that. If we had the real recovery in housing market we should not witness increasing the short-selling. To me is laughable when analysts say "housing market hit the bottom". We need to face the reality; there is a direct relation between household income, unemployment and home value. It is insane to think by giving away $8000 to home buyers we could slow down the foreclosure rate. Baling out the insolvent institutions and forcing FASB to relax the mark-to-market accounting rules have helped the Wall Street, but it won't stop the foreclosures. They just kicked the can down the road. Their home loan modification was a big joke, There were 168,708 delinquent loans permanently modified under HAMP(Home Affordable Modification Program) as of the end of February, according to a Treasury Department report March 12Th. Problem is the percent decrease in mortgage rates were not big enough to stop the home owners from re-defaulting. The re-default rate of loans modified in the Q1 of 2009 was over 51.5% by the end of the same year. Some sources reported much higher numbers a total of +71% re-default rates.

The reason banks don't want to modify loans would be very simple, anytime a banker modifies a loan he has to report it as loss, but if banker leave it as it is, he doesn't need to report it as loss, thanks to change in "Mark-to-market" accounting rules. Therefore they are not going to actively participate in loan modifications. Government addressed the symptoms, but what about the causes? When are we going to do something real for home owners? I start to wander if Congressman Barney Frank and his bodies in the Financial Services Committee have ever passed the Econ-101!

Table above shows contributions to Congressman Barney Frank the head of Financial Services Committee received back in 2007-2008 at the same time the U.S. economy was teetering on the edge of collapse. I think if taxpayers could lobby congress and spend as much as financial industry does, they might do something for us too.

Mortgage %90+Days Delinquent Map:
Source:The Federal Reserve Bank

Technically When a house is +90days delinquent, it is consider as future foreclosure.

Prime ARMs Map:

Source:The Federal Reserve Bank

Prime ARMs Resetting in Next 12 Months Map:

Source:The Federal Reserve Bank

When these mortgages reset there will be many home owner who have to walk away from their homes and more foreclosured houses will hit the already weaken housing market. Please note these are homeowners with good credit who speculate on housing market and bite off more than they could chew. When the 1-2% teaser rates reset to a much higher rates, it makes more sense to walk away instead of negotiating with lenders to modify the loan. Because decreasing the prices prevent them from refinance their loans therefore they have no other options besides short selling or foreclosed their homes.

As I mentioned in my previous articles I expect Option ARM Tsunami to hit the U.S. housing market by mid 2010 and 2011. The eye of the storm should arrive by August 2011. As a contrarian analyst I believe it will be the fundamental reason for the double dip recession. I'm not bullish but charts are opposing my fundamental analysis. Technical analysis always have the upper hand in short and intermediate terms, but fundamentals always have the last word. Technicals look bullish and point for continuation of this rally. We should wait and see when big institutions are going to press the sell buttons. Meanwhile enjoy the bull ride.

Related Topics:
Option ARM Tsunami Is On The Way