The Mortgage Business is in Trouble!

Implications: I believe we will see a further significant downturn in housing prices which will follow an abundant oversupply of homes on the market produced by defaults over the next year.

- Real estate broker volume may increase but home building and land development will be off.

- The purchase side of mortgage banking will increase to handle the volume. 

- Refinancing terms will be tougher and the higher ratio second mortgage volume will be off.

Analysis:

I believe we’ve forgotten in our predictions of a new housing recovery that homeowners often have to move/sell for reasons which are not within their control.  The factors of employment change, retirement, illness, education and divorce among others play a part in these decisions.  Those influences will bring volume up over a period of time once sellers finally determine that the inevitable has arrived.  One of the ways that the inevitable is postponed is by drawing the equity from homes through secondary financing.  We all know that higher debt service is often a strain and that it is not unusual for several events requiring money to occur at the same time.  The education of children for instance may hit a high as parental incomes are beginning to suffer as divorce and illness occur.The strain is beyond planning and sometimes results in default.  This is happening more often today and may accelerate even further in the near future.

When such defaults occur, the supply of homes on the market will rise even further.  The successful seller will prime the market by offering the best value including pricing.  Assuming there is an oversupply in the market as currently exists, the oversupply has the threat of turning the market into a route.  Then prices collapse even further.  The homebuilding business declines to a mere shadow of itself in such times.  Again, I think this will happen.