Summary
The number of foreclosure actions continued to rise in the first part of this year and owners and investors found they were unable to either refinance or sell the homes for what they had in mortgages. One of the little understood facets of this current phase in the disintegration of the housing markets is the fact that many of these homes were purchased from around the middle of 2006 until the 3rd quarter of 2007. The upshot of this is that foreclosures can, in many places take a great deal of time to register on county records. Those foreclosures now in the initial stages of default could be showing up by the end of this year. The forecasts for additional defaults are all uniformly high, and our expectation is that it will exceed 3.3 million units by the time it's over. It just depends on which metropolitan area you're evaluating.
Analysis
The most significant factor at work here is perhaps one of timing and the nature of the excess. The vast majority of foreclosures in major metroplitan areas were due to speculation, which is easy to gloss over. The point is, many of these homes purchased by speculators were never occupied and so they add a burden on the for sale and rental markets that is unprecedented in recent housing history. As the initial wave of mostly unoccupied houses finally get sold through deep discounts and other REO actions, there is the very real possibility that some percentage of these (estimated at 31%) could end up as rental units. This not only has the prospect of acting as a drag on the recovery of the housing markets in certain neighborhoods for years to come, it also adds to the stock of potential units renters can consider, potentially cutting into the gains landlords were expecting.
