December 13, 2010, Marketwatch.com
CHICAGO (MarketWatch) — Brace yourself for another rough year in housing. The number of foreclosures is expected by many to increase in 2011 as more troubled mortgages work their way through the pipeline.
Foreclosures may well peak next year, said Rick Sharga, a senior vice president for RealtyTrac, an online marketplace for foreclosure properties. The market is expected to tally about 1.2 million bank repossessions in 2010, up from 900,000 in 2009, he said. Read more about foreclosure filings in 2010’s third quarter.
“We expect we will top both of those numbers in 2011,” he said.
That’s partly due to issues the industry faced with foreclosure processing that began in the fall and delayed a portion of foreclosures from being completed this year, he said. In the so-called robo-signing controversy, some lenders halted foreclosures after learning procedures for signing off on foreclosure documents might not be in accordance with the law.
Continued high unemployment is also expected to exacerbate the foreclosure problem in the year ahead, as will upcoming interest-rate resets on adjustable-rate mortgages that will increase monthly payments for some homeowners, Sharga said.
Also, U.S. Treasury Department data indicates that fewer borrowers have been approved for permanent modifications in recent months, said Greg Hebner, chief executive of MOS Group, a loss-mitigation service provider to mortgage lenders and servicers.
What’s more, there’s a growing sense that modifying mortgages doesn’t get to the heart of the housing crisis. “There is the perception that the answer to this involves trying to get job growth,” which will help homeowners pay their loans and enable others to buy homes, said Jay Brinkmann, chief economist for the Mortgage Bankers Association, during a recent conference call with reporters.
Beyond 2011, the picture improves
However, the longer-term outlook for the foreclosure market is better since fewer homeowners are falling behind on their mortgage payments. Thirty-day delinquencies are down 11% since the height of the recession in the first part of 2009, Brinkmann said.
And the portion of loans 60 or more days past due is expected to fall nearly 20% by the end of 2011, to 4.98% of all mortgages from an expected 6.21% at the end of 2010, according to a forecast released on Tuesday from TransUnion, a credit-reporting company. Delinquency numbers are expected to continue to improve as unemployment slowly declines. (For its numbers, TransUnion used a random sample of 27 million records from its database.)
“It’s good progress, but we are by no means out of the woods yet,” said Steve Chaouki, group vice president in TransUnion’s financial-services business unit. In a more normal market, 60-day delinquencies would be in the 1.5% to 2% range, he said.
Housing prices expected to fall further
So what does all this mean for housing prices?
A large number of houses on the market, along with high unemployment, will likely add up to continued depressed home prices in the year ahead in many markets, said Nichole Jordan, banking and securities industry practice leader for Grant Thornton, an accounting and business advisory firm.
“It’s going to take several years to work through the excess inventory,” she said.
Jordan and others are looking to 2012 for anything resembling a recovery in housing. Even then, it’s going to be a long journey to stabilization; it historically takes five to seven years for prices to stabilize after a deep correction, Jordan said.
“Realistically, you’re not going to see home prices appreciate next year,” said Jason Kopcak, head of whole loans at financial-services firm Cantor Fitzgerald. In fact, many in the industry are expecting prices to fall another 10% next year on a national basis, he said. Sharga said the national decline could be around 5%. Some economists expect prices to remain flat.
Next year “is going to be a wash, in terms of any meaningful recovery, and we’re looking toward 2012,” said Guy Cecala, publisher of Inside Mortgage Finance, during a conference call with reporters. And that’s assuming there are no other major problems or delays to contend with, he said.
None of this comes as a surprise to a majority of Americans. Only 10% of Americans said they believe the housing market will recover next year, according to a survey released on Tuesday by Trulia.com and RealtyTrac.
Twenty-seven percent said they think housing will recover in 2012, 24% said 2013, 12% said 2014 and 22% believe it will recover in 2015 or later. That’s according to 2,034 adults surveyed in early November.
“More and more, American homeowners, sellers and buyers are tamping down their expectations for a swift recovery in the housing market,” said Pete Flint, chief executive of Trulia.com, “and bracing themselves for a long, slow climb back to a healthy real-estate market.”