Saturday, September 22, 2012

2.4mm delinquent loans to be resolved in 2012; shadow inventory declining rapidly

E-mails and comments about the shadow housing inventory overhang continue to come in. The US housing market is doomed, delinquencies are out of control, etc. etc. It has almost become a religion - drummed into people's heads by the relentless beat of doomsday bloggers and the mainstream media. But if one simply looks at the data - without some of these preconceived notions - a considerably different picture emerges.

In the first half of 2012 alone, 1.2mm of delinquent mortgages were resolved.

Source: JPMorgan

By all accounts this pace of shadow inventory clearing is continuing going forward, with a total of 2.4mm delinquent mortgages resolved this year alone.
JPMorgan: - Some activity will increase due to forgiveness arising from the AG settlement, which should have its largest impact in 2H12. There we think 100,000 loans could see forgiveness of about $100,000 each, fulfilling settlement obligations. Overall, we estimate 800,000 modifications will be done this year. Combined with 670,000 short sales and 950,000 REO liquidations, we think 2.4mn loans will be removed from inventory.
Source: JPMorgan

After a period of false starts and unproductive legislative delays, Americans have become fairly efficient at clearing out delinquent home inventory. This is what makes the US so different from Japan for example. At this pace the so-called shadow inventory drag on the housing market will diminish rapidly in the next couple of years.

Source: JPMorgan
(FC=foreclosures, REO=bank owned, 60+= more than 60 days delinquent)
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