Recovery horizon just keeps getting farther away

"Delinquent Mortgages Set to Nearly Double in 2009," in Tuesday's Wall St. Journal, included some telling statistics. No, it wasn't this part that caused me to sit up and take notice:

The number of consumers with delinquent mortgages is poised to almost double by the end of next year, hitting its highest level in at least 16 years, according to a leading credit bureau.

TransUnion LLC, which analyzed about 27 million consumer records in its database, predicted that the proportion of consumers with mortgages that are 60 days or more past-due will hit 7.17% in the fourth quarter of 2009.

But this part: "Mortgage delinquencies are likely to peak in the first quarter of 2010...."

That's a long time till we hit the peak and an even longer time as the economy recovers, jobs return and housing rebounds. If I had to call the home price bottom, I just moved it out at least two years ... to 2012. What a mess. You?

--Lauren Beale

Thoughts? Comments? 

Comments

[MyLessThanPrimeBeef]

The phrase of the year is 'See ya in 2058!'

And people a hundred years from now will agree - the strategy of selling in 2008 and buying back in 2058 was a good trade.

They will also agree that the phobia about another super-power replacing the US was misplaced. Instead, it will be more like the Dark Ages following the fall of Rome; we won't see another Rome for hundreds of years.

[laland junkie]

Hey Lauren,

Its compelling that your estimate for recovery is 2012 because it falls directly in line with data that was presented on the Arcadia Housing blog in March '08. See the post titled "The Data Does Not Lie."

If you looked at the Case Shiller / S&P index it showed that home values deviated sharply from the yearly avg of 3.3% appreciation and shot up 53% from 2000 to 2008. And if we followed the same trajectory downward it would take until about 2012 for home values to return to normal. I recommend for people to review this post on the Arcadia Housing Blog because like the Irvine Housing Blog and Calculated Risk, it was ahead of its time and offered solid data to predict the things that are happening now. As we move forward there is a lot we can learn looking backwards.

8 months ago you would get skewered for making such a bearish prediction on LA Land but times have changed and the so-called negative Nancy's of yesterday are proving to be correct today. Its amazing that so many people knew this was going to happen but the smartest people in finance and government had no idea. Scary.

[latesummer2009]

It appears we have only made it through stage 1 of the Real Estate Collapse. Subprime. Next to follow are ALT-A, Prime and Job Losses. People need to look at the facts and not just hope. We are a long ways off from the financial mess being solved. Still losing blood to banks, auto companies etc..etc...

IMHO, when the bottom occurs, it will flatline for another 3-5 years. Unfortunately, every neighborhood will be affected.

http://www.westsideremeltdown.blogspot.com

[dclogang]

I think you are moving your predictions further into the right direction. Good for you!

I think the bottom may be much further than that however.

If you look at Japan's housing boom/bust.. you see a similarity although, I think this boom and bust, since it is on a much greater global scale. The U.S. housing market downturn will be greater for a much longer period.

I don't see any kind of recovery for say... 20 years.

Anyone want to challenge that number?

My prediction for average sales price of a mid size house (1300 to 1600 sq ft) in the San Fernando valley will drop far below $200,000 in the next year or so.

[Tim K.]

The "recovery horizon" - i.e. when housing prices start going up again, is not moving any further away for those economists who have quantitatively studied the data. And no, just saying "next year will be better!" is not quantitative analysis.

The best analysis came out almost 2 years ago, which was a chart of the mortgage reset timeframes put out by Ivy Zellman when she was a Credit Suisse. That chart quite accurately showed there would be two large bumps in the road for mortgage problems - 2008 and a larger one at 2011-2015.

Businessweek did a revision on this graph and felt that the later 2011-2015 bump, which was mostly jumbo Option-ARMs, was likely going to be compressed and moved up towards 2009 because of the fact 80% of the people in Option-ARMs were paying the minimum, which forced certain actions relating to maximum LTV to kick in, making the borrowers pay the fully amortizing rate earlier.

So, to folks like me who read those great reports which backed up their forecasts with hard data, this is not any surprise or even revision of past predictions. We're arriving right on schedule.

[Laker]

Lauren, there is no need to "move" the date housing will recover. All signs predict no good future for house prices.
1) If Inflation kicks in, the bond rates will shoot up, and mortgage rate will go up, that will serve as damp effect on house prices as it will reduce afford-ability.
2) If deflation will still be the major force, that means no jobs, and that means no mortgage payments...

Many economists were saying for a long time that the peak in ARM resets and thus foreclosures will be in 2011-2012. Problem is we go there sooner, and many are actually surprised to see that the main reason to default is not ARM rate uptick but actually being up-side-down on the house, aka underwater.
The kicker is the job losses. When you lose your job, you no longer care about rate going up, house up-side-down....you simply can pay any mortgage...

One of major effects will be pressure on Rent to go DOWN. It happens in every recession, and sure under severe one. Having rents go down will tweak the rent - mortgage comparison formula, and will thus drive house prices below mean aka overshoot down.

[Jonah]

Lauren,

For my wife and I it comes down to affordability and when the market hits that point for us. We have a fairly strong income (above 100k) but nothing that we like is in our price range....yet. They are getting there, but I firmly believe your housing shouldn't be more than 35% of our monthly income.

When a nice house in Pasadena comes on the market and we can afford it without sacrificing our savings and retirement funds then we will purchase a home. That could be 2010 or 2012. Otherwise, it could be hard to time the market.

[TrojanDLA]

Lauren, is Peter Viles' departure permanent?

[The Original RZ]

Since there's going to be misery in the housing market anyway, I don't understand why the powers that be won't let the misery hit earlier, so we can start the recovery sooner.

[Steve]

SoCal could be hurting for a while, while other parts of the country are thriving. The rental market is going nuts in CO and there are postives all over. Thanks moron bankers and keep up the great work .

[Laker]

I found AP news item not really related: Merrill plans to halve year-end bonuses

http://biz.yahoo.com/rb/081203/business_us_merrill_bonus.html

So, the government gave $10 Billion dollars from tax payers to Merrill, It gave $15 Billion to Bank of America. Now, Merrill executives will get half the bonus from last year....WHY GIVE THEM ANY BONUS????
If they took tax payer money to run their business, it means they have NO profits but actually losses. If you have losses, how can you pay bonuses????
WTF is wrong in this country? In the place i work at, if there are not profits, the bonus is ZERO, 0, zeltch, nada.
If there are profits, you can expect to get something.
If Merrill is giving $1 or even 1 red cent in bonus money to any executive, then they have to return all tax payer money immediately!!! WTF.

[Nancy]

Laker, are you a fan of Peter Schiff? The predictions in your comments seem to echo what he has been saying. And he has been correct so far.

laland junkie: "negative Nancy's of yesterday"

Never heard that one before. I take that as a complement. :-)

[Danny]

As Tim K. said above, the recovery date isn't actually moving. It's just that more and more economists are - GASP - actually looking at the data and coming to a logical conclusion! The next great revelation that will happen (let us hope it happens soon) is that we can't stop the correction. Prices will not stop falling until they are in line with incomes - it couldn't be any simpler.

[MyLessThanPrimeBeef]

Laker, I think we have been Merrill-Lynched.

[Lauren Beale]

MyLessThanPrimeBeef: LOL
laland junkie: My thinking was the great Depression lasted 43 months or somesuch (per recent WSJ chart) and we're about 12 months into this "recession" and this pickle we're in is no where near over. Not a recovery in 2012, but perhaps a bottom and who knows how long that might stall out. Eight months ago I naively couldn't have imaged today's scenario.
dclogang: Yes, I could still be too optimistic. Old habits die hard. I just always believed in home ownership, thinking if I was living within my means all would be well. I was wrong, we're all sinking here. I do feel the fool.
Laker: Regarding rents: You'd think they'd be going down and fast but there are a lot of houses sitting empty for the moment. I know people looking for rentals in L.A. who can't find them.
TrojanDLA: Peter's departure is permanent as far as I know. He's taken a day job elsewhere and as much as we'd love to have him moonlight it's probably not in the picture (i.e. in line with his new employer's plans). Dunno. Hope springs eternal but he's too new in his job.

[aldo818]

anyone see the article on MarketWatch.com that said economists think homes are now UNDER valued?
LOL!
Sometimes not even The Onion can make articles that funny!

[Laker]

aldo818,
I think houses in Kansas, Detroit, Ohio, South Dakota, etc...might be undervalued !

But, houses in LA are sure NOTTTTTTTTTTTTTTTTT.

[WEJ]

I don't understand the prognosticators who keep talking about "housing recovery." We haven't reached the bottom yet, and once we do it will likely be several years of "crawling along the bottom" so to speak - very minimal appreciation (if any). This means that "market bottom" and "recovery" will most listely be years apart.

It seems like some people are expecting a prompt "recovery." There is NO basis for believing this will happen

[dclogang]

"Laker: Regarding rents: You'd think they'd be going down and fast but there are a lot of houses sitting empty for the moment. I know people looking for rentals in L.A. who can't find them."

This is a bit surprising to me because my wife and I found a nice little home to rent in Tarzana (3 months ago) 1,243 sq ft. 2 car garage for $1850/month. It's on a nice quiet street. (It was originally $1900/month but they were struggling to find renters. so rates are coming down.)

We were in a townhouse in Reseda and they wanted over $2000 for a smaller sq footage place and no yard.

I think in this market people can negotiate rents. Make sure the house you are renting is run by a management company like we have.

Lauren: Very big of you to say that!

Nancy: Like Laker, I'm a HUGE Peter Schiff fan. He's very smart and knows of what he speaks. He should be on Obama's cabinet! (I'm not kidding).

[La Land Junkie]

Ah yes Lauren, I misspoke. If anything it will be a bottom and not a recovery in 2012.

And with or without Peter, you guys are doing a fine job. I was scared that LA Land would go down the tubes without Peter, but you guys have maintained the integrity and vision of this blog and it still remains one of the best sources for LA real estate news + discussion.

Keep up the good work!

[Kee Kee]

Wait a minute. Foreclosure rates are set to be the highest in "sixteen years"? What was going on 16 years ago. I thought this was the worst real estate crisis in history.