Posted on April 28th, 2008 in Mr Mortgage's Personal Opinions/Research
I hate to use ‘Government data’ for anything, but in this case I will make an exception WITH some comments.MarketWatch just released a news clip with data from the Commerce Dept saying the number of vacant homes reached a record high of 18.6 mil units, which was a 1 mil increase in the past 12 months. Of those 18.6 mil, only 2.3 mil were for sale (listed inventory) at the end of q1. The report also stated that a record 4.1 million vacant homes are for rent, with the rental vacancy rate rising to 10.1%.What does this mean? It means the ‘Months Supply’ figures released by NAR each month with the Existing Home Sales figures, which the press and market love to get so hot and bothered over, are highly suspect. While they are accuate with respect to supply of total homes ‘FOR SALE’, the amount of potential inventory is staggering when considering vacancies…Months Supply reported each month is calculated using the ‘listed inventory’ (see above) and a sales rate.
Last month, the national Months Supply was roughly 10 months. But, if actual vacant supply is 8 times listed supply, the supply glut is likely much worse than even I thought. Of course, nowhere near all vacant homes will go into the supply chain but even so, the potential supply looks to be much larger than anyone has estimated. However, with prices moving downward and inventories up at such a quickening pace, stagnant supply in the form of non-listed vacant homes may enter the market at a greater rate. Also, don’t forget that the number of ‘listed’ home is always considerably lower from Dec through Mar as real estate sales persons remove listings in the slow months and put them back on, usually at higher prices, going into the Spring/Summer selling season. This ‘refreshes’ the listing.
Essentially, supply is coming from everywhere and growing. As you have heard me report many times in the past, the Notice-of-Default filings (preforeclosures) are also surging, especially in the bubble states, and NOT primarily from subprime borrowers. For example, in CA for March there were 42,700 Notices of Default (NOD) and 27k actual foreclosure filings according to data from ForeclosureRadar. Actual home sales were fewer than either category.
Given that only 25-30% of all NOD’s are cured and the rest go to foreclosure, there is a growing wave of foreclosures (supply) still coming. Of all foreclosure listings, only about 25% are cured. The rest go to auction. At auction in CA last month, only 2.5% sold and the rest went back to the bank as REO. Similar numbers hold true for other bubble states.
Bank REO is counted in the total vancany rate, if vacant. Bank REO is a real wildcard and responsible for massive price swings lower in neighborhoods throughout the bubble states. I will get into much deeper in future releases. There are also currently a few YouTube videos listed to the right that deal with foreclosures and home sales.
If proven economic principals supply, demand and affordability hold true, this vacancy report does not bode well for housing prices going forward. These data certainly do not point to any sort of ‘bottoming’ in the housing market whatsoever. Rather, it points to ‘early innings’ of a housing correction. -Best, Mr Mortgage
MORE MR MORTGAGE – YOUTUBE SERIES
Mr Mortgage – Non-mainstream March Existing Home Sales Report http://www.youtube.com/watch?v=xi76bemJECU
Mr Mortgage – March Foreclosure Crisis http://www.youtube.com/watch?v=lkQz9Aw4dNo
Mr Mortgage – Here Comes the ALT-A Crisis http://www.youtube.com/watch?v=pmeBSWI9sF8