The Housing Market has gone bonkers again, but in a different way
It was the best of times. It was the worst of times.
I'm referring to U.S. real estate in 2020, not to the French Revolution.
In one way the housing market is on the verge of a collapse that would easily rival, if not exceed, the 2008 collapse.
The Federal Housing Administration (FHA) which insures about 8 million high-risk mortgages with lower requirements – “low down payments,” “low closing costs,” and “easy credit qualifying,” it says – reported that an all-time record of 17.4% of its mortgages were delinquent in August, up from what had been the all-time record in July of 17.0%, and having doubled from a year ago.
The FHA’s mortgage portfolio always has higher delinquency rates than more risk averse portfolios. Over the past two years, about two-thirds of mortgages had credit scores at origination of 679 or below. To tamp down on the risks, the FHA began tightening up its lending standards in 2019. But it wasn’t prepared for what came next.
“Seriously delinquent” mortgages in the FHA portfolio – meaning, 90 days or more delinquent – rose to an all-time record of 11.2% in August, from 10.9% in June, having nearly tripled from 3.8% August 2019.
Imagine that. Millions of FHA-mortgages are seriously delinquent, at an even higher rate than during the 2006-2009 real estate collapse.
How could they let this happen AGAIN?!?
So are people panicking?
On the contrary. Home buyers are absolutely euphoric!
Sales of new single-family houses, based on contracts signed in August, jumped by 45.6% year-over-year to 83,000 deals, not seasonally adjusted, matching July deals, and a notch above June deals (79,000), according to the Commerce Department today. All three of them were the highest monthly sales since April 2007, but still well below the peaks in 2004 through 2006.
The “seasonally adjusted annual rate” – the number of sales for an entire year if sales continue at the August pace – jumped by 43.2% to 1.01 million houses, the highest since the November 2006.
WTF is going on?
Simply put, the distressed home owners and the euphoric home buyers have little or nothing in common.
The number of speculative houses for sale (does not include houses that homebuilders built on order for a specific buyer) has been declining since March. In other words, homebuilders are selling down their inventory of spec houses. In August, the number houses for sale dropped to 282,000 (not seasonally adjusted), the lowest since 2017. Note the pileup of spec houses during the Housing Bust when demand vanished, even as home builders continued to build. This is not case during the Pandemic
What is happening is that poor homeowners are being pushed out - again - while wealthy real estate speculators scoop up land from these distressed families.
Unlike 2006-2008, this is sustainable economically, but not socially.