Home Sales are Improving! Er…wait a minute…
RECENT THOUGHTS
Investors are cheering an increased rate of home sales. Let’s look at the data more closely.
We’ve recently learned that 1 in 8 households with mortgages are in foreclosure and/or behind on payments. In the beginning, it was subprime borrowers with mortgage resets that couldn’t refinance who were defaulting. Now, it’s the prime borrowers who are picking up the pace of foreclosures and delinquencies due to traditional reasons such as rising unemployment.
On the front cover of the “Money & Investing” section of today’s WSJ, there was an interesting statement in the “Ahead of the tape” column by Paul Vigna, titled “Improving Home Sales Belie Market Reality.” His statement really puts things in perspective:
A survey conducted in June of 1,500 real-estate agents sponsored by the trade publication Inside Mortgage Finance found that 36% of all sales involve “nondistressed” properties. Of the nondistressed sales, only 31% were what the survey described as “unforced or optional.” The rest were sales by homeowners in some kind of financial or personal crisis. “Think about that for a minute,” John Mauldin of Millennium Wave Advisors wrote this week. “Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage.” And only a third of the remaining one-third — roughly 10% of overall sales — comes from “something we could call a normal selling process.”
I’d suggest waiting before we begin the celebration.