Recent reports on unemployment, home building, and new foreclosure filings all indicate the tepid economic recovery will provide little juice to help the ailing home sales market now and in 2012.
Investors who are hopinge to cash in on "the bottom" of the residential market have a tough job ahead. While they have to be ready to pull the trigger in some markets that are experiencing economic growth, home sales in other sections of the country are precious and few. In the latter case, patience may be the credo to follow, at least for bottom fishers in the short term.
University of Michigan economists Joan Crary, Daniil Manaenkov, and Matthew Hall predict the US economy will only produce moderate growth that will generate just enough jobs to slowly reduce the nation's unemployment rate. Unemployment now stands at 8.5%, according to the most recent data from the Bureau of Labor Statistics.
That rather gloomy stat was released yesterday, the same day the US Labor Department reported that claims for unemployment dropped by 5,000 to the lowest level in seven months. The jobless report showed a decline in both initial and continued unemployment claims.
In the meantime, new housing permits, a precursor for potential home building, soared by nearly 11%, although actual new housing starts remained virtually flat (-0.3 %) last month.
In their report, the University of Michigan economists predict GDP growth will climb from this year's estimated 1.8% rate to approximately 2.5% in both 2012 and 2013.
They also forecast that nearly 4 million jobs will be added over the next two years -- 1.9 million during 2012 and 2 million the following year. The new job creations will ratchet down the US unemployment rate from 9% to 8.8% in late 2012 and to 8.5% by late 2013. Not exactly a robust recovery, to say the least.
Manaenkov noted that normally a boost in residential construction investment has led the US economy out of prior recessions. However, this time it is different, as he characterizes the current housing recovery as "nonexistent" and home sales this year and next as "weak."
While home sales have improved this year, he writes in the report:
Until prices stop falling, there is a powerful incentive for qualified buyers to wait for lower prices, delaying the necessary process of clearing the excess inventory of existing houses left over by the collapse of the bubble. The longer it takes to clear this inventory, the longer we will have to wait for the construction of new homes to pick up.
Foreclosures and short sales have put downward pressure on home values, particularly in markets that are struggling -- and will likely continue to do so for some time.
The Mortgage Bankers Association reports the delinquency rate for home mortgage loans (one to four units) fell to just under 8% in the third quarter, a drop of 45 basis points from three months earlier.
But don't put on the party hats and order the champagne just yet. The MBA went on to state that the percentage of loans in which foreclosure actions were initiated rose 12 basis points to slightly more than 1% in the third quarter. The percentage of loans in the foreclosure process at the end of the third quarter was 4.43%, unchanged from the second quarter and four basis points higher than a year ago.
The percentage of loans 90 days or more past due or in the process of foreclosure was 7.89%, an increase of four basis points from last quarter, although the latest figures showed a decrease of 81 basis points from the third quarter of last year.
Michael Fratantoni, MBA's VP of Research and Economics, notes in a press release that although mortgage delinquency figures have improved, other foreclosure data indicates that "we are not out of the woods yet and that the issues continue to vary by geography."
He noted that the rise in foreclosure starts was driven by significant increases in filings by a few mortgage servicers that were concentrated in a few states that are suffering high unemployment. Outside of those hard-hit states, improvements in the rate of foreclosures are taking place, albeit at a slow pace due to the weak job environment.
Some housing and finance analysts believe foreclosure filings could increase next year as mortgage lenders clear up the robo-signing caseloads with various state attorney generals offices.
Another factor that could put more inventory on the market and put downward pressure on pricing is the backlog of cases in some locales. According to RealtyTrac, New York properties that were foreclosed in the third quarter took an average of 986 days (2.7 years) to go from filing to sale. New Jersey was the second longest, with an average foreclosure process of 974 days (2.66 years), followed by Florida at 749 days (2 years).
In Texas, however, a state that doesn't hesitate to fast-track the execution process, delinquent homeowners have little time to procrastinate. Foreclosure proceedings in the Lone Star State took just 86 days (less than three months) in the third quarter, down from 92 days in the second quarter, RealtyTrac reports.