Lots of talk of late about the double dip recession, caused in many ways by ongoing housing market declines. Here’s where market conditions matter most for borrower behavior and seller psychology, impacting future housing prices.
Jacob Gaffney at HousingWire discusses the “shadow shadow inventory.” He writes:
The recent data that shows delinquencies rising, mixed with reports that a lack of borrower equity is one of two major reasons for mortgage default, is propelling mortgage finance analysts to attempt to measure the pipeline of borrowers who are likely to lose their home, via strategic default or loss of income.
Add this to a slew of strongly negative housing data reported over recent weeks:
- Our July 2010 Webcast on the post-stimulus housing market and the Altos Research August 2010 Real-time Housing Report showing our 10-city and 20-city composites moving negatively into August
- The National Association of REALTORS with home sales down 27%
- LPS reporting year-over-year delinquency volume rising
- CoreLogic’s Q2 Negative Equity Report – “An additional 2.4 million borrowers had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 28 percent of all residential properties with a mortgage nationwide.”
Enter the importance of market conditions — walkaway and default decisions are made on the margin. With a slew of borrowers on the edge of negative equity and a whole bunch more in the “just barely underwater” range (say negative 5-15% equity), a 10% drop in housing prices will mean an increase in delinquencies and housing inventory over time.
Check out how the last round of increased delinquencies in late 2008 are correlated with market conditions (click to enlarge):
Borrower psychology is pretty simple to figure out – check out Homeowner Hank down in Texas. And while all the talk in economic circles is “jobs, jobs, jobs,” the real driver of delinquencies is negative equity. Real-time market conditions are worsening across the country with inventory and price reductions rising, leading to a decline in prices and place more and more borrowers into a negative equity situation: