New Wave of Defaults is about to Slam into the Mortgage Industry
Meanwhile, from Phoenix comes news that a new wave of defaults is about
to slam into the mortgage industry. Commercial properties, retail
space, office complexes, apartment buildings are hard to rent. You can
see why. In 2007, America was already outfitted with far more retail
space than it actually needed. Americans had gone on a shopping spree
for the previous ten years...prompting builders to add more and more
space. By 2006, the United States had 10 times as much retail space per
person as France. This was the bubble phase of a boom in consumer
credit that began in 1945.
When you get to the bubble phase, few people stop to ask questions.
Instead, everyone assumes that the trends in place will remain...and
even intensify. So even into 2008, in Phoenix as well as other growing
areas - principally in the sand states - the building continued. And
now it is 2009. Where are the shoppers? Where are the renters? Alas,
they are thinner on the ground than anticipated...and the developers
are having trouble paying their mortgages. Commercial mortgage backed
securities are carrying 5 times the unpaid balances they had in June
'08, says Bloomberg.
Imagine how disappointed lenders will be when these loans default. And
then, imagine how American investors will feel when a new wave of
mortgage defaults and foreclosures is hits the commercial property
market.
A new wave of foreclosures and falling house prices may be approaching
the housing market too. Alan Abelson, in this week's Barron's, reports
on the outlook as described by Amherst Securities. The research group
estimates an overhang of 'hidden inventory' of some 7 million units.
These are properties owners would like to sell - if and when the market
strengthens. Trouble is, the market may not strengthen soon enough.
Then, many of these hidden properties could come right out in the open,
as mortgages are reset, marriages break up, and people move on. Amherst
says these people are in the "delinquency pipeline" which eventually
flushes out the market. And it calculates that another 300,000
properties enter the pipe every month.
Falling prices have reduced 'owners' equity' - the part of the house
the homeowner owns free and clear of a mortgage - to only about 43%.
This number includes people who have no mortgage at all - more than 50
million of them. Abelson speculates that the actual equity in the hands
of the 'owners' of mortgaged houses must be substantially less. Pushed
by joblessness...not to many life's other, normal hazards...many of
these people are surely going to default. Of those in the "delinquent
pipeline," nearly 10% haven't made a payment in more than two years.
Sooner or later, the banks and mortgage holders will be forced to take
action...and more houses will come onto the distressed property market.
to slam into the mortgage industry. Commercial properties, retail
space, office complexes, apartment buildings are hard to rent. You can
see why. In 2007, America was already outfitted with far more retail
space than it actually needed. Americans had gone on a shopping spree
for the previous ten years...prompting builders to add more and more
space. By 2006, the United States had 10 times as much retail space per
person as France. This was the bubble phase of a boom in consumer
credit that began in 1945.
When you get to the bubble phase, few people stop to ask questions.
Instead, everyone assumes that the trends in place will remain...and
even intensify. So even into 2008, in Phoenix as well as other growing
areas - principally in the sand states - the building continued. And
now it is 2009. Where are the shoppers? Where are the renters? Alas,
they are thinner on the ground than anticipated...and the developers
are having trouble paying their mortgages. Commercial mortgage backed
securities are carrying 5 times the unpaid balances they had in June
'08, says Bloomberg.
Imagine how disappointed lenders will be when these loans default. And
then, imagine how American investors will feel when a new wave of
mortgage defaults and foreclosures is hits the commercial property
market.
A new wave of foreclosures and falling house prices may be approaching
the housing market too. Alan Abelson, in this week's Barron's, reports
on the outlook as described by Amherst Securities. The research group
estimates an overhang of 'hidden inventory' of some 7 million units.
These are properties owners would like to sell - if and when the market
strengthens. Trouble is, the market may not strengthen soon enough.
Then, many of these hidden properties could come right out in the open,
as mortgages are reset, marriages break up, and people move on. Amherst
says these people are in the "delinquency pipeline" which eventually
flushes out the market. And it calculates that another 300,000
properties enter the pipe every month.
Falling prices have reduced 'owners' equity' - the part of the house
the homeowner owns free and clear of a mortgage - to only about 43%.
This number includes people who have no mortgage at all - more than 50
million of them. Abelson speculates that the actual equity in the hands
of the 'owners' of mortgaged houses must be substantially less. Pushed
by joblessness...not to many life's other, normal hazards...many of
these people are surely going to default. Of those in the "delinquent
pipeline," nearly 10% haven't made a payment in more than two years.
Sooner or later, the banks and mortgage holders will be forced to take
action...and more houses will come onto the distressed property market.
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