Morgan Brennan of Forbes.com runs a fantastic commentary and blog upon economic issues.  I have read a recent post she made and I refer to it because I think it is so important.

Many people are “holding on” to houses that are way under-water e.g., much more is owed against the home than it is worth.  These hopefull folks want the good old days of the early 2000s – they hope that housing prices will rebound and that they can perhaps sell their home or borrow against new-found equity in order to pay off medical bills, credit card debts and other obligations.

But Ms. Brennan thinks otherwise – she doubts that there is really any true national “recovery” in housing set to take off anytime soon.  She provides lots of good explanations and reasons why.  She also discusses with clarity something I have long sought to express – that houses are not necessarily “investments”, but rather a localy based asset that has utility for household needs – like a washing machine, fridge or station wagon.

Here is what Ms. Brennan has to say:

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“The Foreclosure Crisis Isn’t Over Just Yet”, December 1, 2012, by Ms. Morgan Brennan of Forbes.com

‘As we move into the last month of 2012, real estate pundits have been eagerly pouncing on the notion of a recovery in housing.

Looking at the national numbers, they are somewhat right to do so. Pending home sales hit a five year high in October, according to the National Association of Realtors, and the brisk pace of existing home sales is 11% higher than a year ago.  Just this week the S&P/Case-Shiller Home Price Index reported that September home prices were up for the sixth consecutive month. Even in terms of economic growth, housing has provided a so-called bright spot, contributing 0.3% to gross domestic product in the third quarter, according to the Commerce Department.

Looking at these relatively rosy statistics, it’s easy to see why the word “recovery” is getting tossed around and why many housing-sector stocks have been teetering in over-bought territory. Now, the positive numbers even have media outlets like Bloomberg.com asserting that the

It’s a gutsy assertion — and one that I’m prone to disagree with.

A major reason the housing crisis was not staved off when the first warning signs manifested in the mid-2000s was the fact that Wall Street, Washington and even Main Street America had stopped assessing housing as what it truly is: a locally-based asset class, not a national one.  Housing is local and as we have been relearning since the downturn, market health — including foreclosures — breaks down by state, city, neighborhood and in some places, even street. The wave of foreclosures has been manifesting at these more local levels — even while national-level data reflects a recovery.

Since 2007, the foreclosure crisis, which has claimed nearly four million homes, has played out very differently across the U.S. After the robo-signing scandal of late 2010, lenders, flush with defaulted mortgage notes, delayed their processing of foreclosures, most notably in judicial states, where filings circulate through a  court system. That delay created an artificial decrease in the rate: 830,000 homes were foreclosed upon in 2011, a 24% decrease from the year before, according to CoreLogic, a Santa Ana, Calif.-based data firm. With the advent of the $25 billion mortgage relief plan in February, real estate experts projected a notable pick-up in activity since lenders sitting on delayed filings would hopefully process them more quickly.

This expected uptick has been referred to as a so-called second wave of foreclosures. It’s this second wave — which is technically distressed inventory overhang from the bursting of the housing bubble — that Bloomberg is asserting has been averted.

Nationally the number of foreclosure filings in October was down 19% from a year earlier, according to Irvine, Calif.-based data firm RealtyTrac. And lenders are finally instituting better foreclosure-prevention policies like loan modifications and short sales that keep homes from hitting their books as REOs. But it comes back location. Dig into the more local data and the wave is evident. You’ll find it playing out in the states where the foreclosure process has been taking the longest and backlogs have built up.

“There’s been a pronounced shift in foreclosures from the Sand States to the East Coast, in particular the judicial foreclosure law states with the longest time lines like Florida, New York and New Jersey,” says Mark Fleming, chief economist for CoreLogic. According to CoreLogic, Florida, as of October, now leads the country in terms of foreclosures with an 11% rate. New Jersey is second with an 8% rate and New York has a 5% rate. (In general, 1% is considered a healthy rate in a healthy market.)

The average time for a mortgaged home to transition from default to bank reposession in each of these three states has been over two years. Now those backlogged filings are pushing through the system at robust rates — in a wave of activity, if you will. New Jersey experienced 140% increase in filings in October year-over-year and New York nearly a 123% increase, according to RealtyTrac. Florida’s rate has been high for years, and while other hard-hit Sun Belt states like California and Arizona have seen activity decrease dramatically by about 35%, Florida’s rate has not.

“There are a set of states that are not improving year-over-year like the others,” adds Tim Martin, group vice predisent of U.S. housing at TransUnion, which tracks mortgage delinquencies of 60 days or more. That set includes New Jersey, Arkansas, Washington, New York, New Mexico, Connecticut, Maine, Maryland and Washington, D.C.  Martin says most of these locales still have incredibly high rates of mortgage delinquencies. In New Jersey for example, 8.3% of mortgage borrowers have missed two or more payments. Once those borrowers miss third payments, their homes officially fall into default and foreclosure filings eventually follow.

Here is a link to Ms. Brennan’s excellent article:  http://www.forbes.com/sites/morganbrennan/2012/12/01/the-foreclosure-crisis-isnt-over-just-yet/

A look at FHFA home price data for the third quarter indirectly reflects the renewed wave of foreclosures in these states also. The states posting the largest home price drops this year are many of the same states where the foreclosure rate has increased this year, including New York, New Jersey, Illinois and Maryland. Foreclosures add downward pressure to overall home prices.

Still, there’s good news on the horizon even in these markets. New borrowers aren’t significantly adding to the default pile and TransUnion projects that the fourth quarter will register a decrease in delinquencies. CoreLogic and others believe the worst of the foreclosure crisis has passed. But in the states where foreclosures are finally pushing through the system, it won’t necessarily feel that way for some time. Thanks to the ‘wave’.

“The housing market is like a large ocean vessel that when heading one direction, takes a while to turn around” explains Fleming. “So it will take time in terms of clearing out all of these foreclosures.”’

Again, this is a great article.  Here is a link to it: http://www.forbes.com/sites/morganbrennan/2012/12/01/the-foreclosure-crisis-isnt-over-just-yet/

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