Let me preface with an apology for the huge supply of numbers in this post, but if you can make it through them all, I think you will get the picture I'm drawing here.
The so-called "shadow inventory" of residential properties is falling, according to a new report from CoreLogic.
This is the number of homes with seriously delinquent loans (90+ days), loans in the foreclosure process and bank-owned homes which are not yet listed for sale.
The supply as of April 2011 declined to 1.7 million units, representing a five months' supply. This is down from 1.9 million units, also a five months' supply, from a year ago.
"The decline was due to fewer new delinquencies and the high level of distressed sales, which helped reduce the number of outstanding distressed loans," according to the report.
Good news, no? Wait. There's more:
"In addition to the current shadow inventory, there are 2 million current negative equity loans that are more than 50 percent or $150,000 "upside down." These current but underwater loans have increased risk of entering the shadow inventory if the owners' ability to pay is impaired while significantly underwater."
And then there's this other report from Lender Processing Services (LPS), which also reports a drop in newly delinquent loans, but gives the actual, mind-numbing numbers of loans in trouble:
- Number of properties that are 30+ days past due, but not in foreclosure: (A) 4,187,000
- Number of properties that are 90+ days delinquent, but not in foreclosure: 1,921,000
- Number of properties in foreclosure pre-sale inventory: (B) 2,164,000
- Number of properties that are 30+ days delinquent or in foreclosure: (A+B) 6,350,000
There are more than six million properties in distress, a third of those in foreclosure. According to yesterday's monthly home sales reportfrom the National Association of Realtors, less than five million homes will sell this year, at the current sales pace. There are currently 3.72 million existing homes for sale, representing a 9.3 months supply; that does not include newly built homes nor does it include that six million number.
This vast supply varies from state to state of course, but the overall effect is downward pressure on home prices nationally. I was interested to see a survey released today by Robert Shiller's MacroMarkets group (of the Case Shiller Home Price Indices). Every month he asks a group of 108 economists, real estate experts and investment strategists for their home price predictions. June's survey found the group's overall expectations have reached the lowest level since the survey started over a year ago, but, "It is apparent that a significant majority of our panelists believe that the bottom for home prices arrived in the first quarter or will arrive sometime before year-end," writes Shiller.
But wait, there's more: The group of 69 panelists who are currently forecasting a 2011 turning point predict less than two percent average annual growth in nominal home prices over the five-year period ending December 2015. Shiller added, “If it were to materialize, such a scenario might be better described as a forecast of price stability rather than a rebound. A 2 percent-a-year home price increase will not inspire a lot of consumer confidence. Given prevailing inflation expectations, this forecast implies virtually no change in real home values going forward."
So I'm faced with a national picture of over 6 million homes with distressed loans, a 9 month supply of existing homes, a smattering of new construction and no home price growth for at least the next four years. Should I buy?