New Housing Worries

Housing stocks under pressure on new worries over inventories and prices. Homebuilding stocks declined yesterday (Thursday) on a report from CoreLogic that more delinquent mortgages were heading for foreclosure and that home prices would likely fall as more of these homes were put on the market. (Another viewpoint: Home Price Double Dip Begins)

It's been three months since the tax credit expired, and the housing market is not showing signs of a recovery. New mortgage applications have been anemic despite low rates. There has been talk that September traffic has been poor. There's talk of more incentives and additional impairment charges.

This weak, Beazer lowered its forecast for new home orders in the fourth quarter.

What's going on? Banks appear to be taking a more aggressive tone to sell the homes at any price. Why?

According to analyst John Burns, it costs banks $20,000-$40,000 to foreclose on a home and take it over. Given those costs, short-sales are increasingly attractive. If they think prices are going to fall another 10 to 15 percent, why wait to short-sell it? Sell it now.

Burns told me that he is changing his forecast to a bottom in prices from 2011 to 2012.

There's another monster lurking out there: Fannie and Freddie. If they truly abandon efforts toward loan modification or just stop ignoring homes that have been delinquent a long time and finally take them over and sell them — that will put even more pressure on inventory and will send a message to the banking world that they can do the same thing. (See: NetNet: We're Stuck with Fannie Mae Forever!)

What's it mean? It means homebuilders will start fewer homes next year--that's a positive from a supply perspective, a negative from economic point of view.

This morning Stifel Nicolaus lowered order projections for many builders, noting "We continue to project a long slow recovery with new home sales not returning to a "normalized" 800K annual pace until 2013."

Lennar will be reporting earnings on Monday; KB Home will report next Friday.

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