The next big risk for the US housing market will concern homeowners with the best credit.
“There will be continuing foreclosures, and not just sub-prime, it will be prime mortgages,” said Professor Robert Shiller of Yale University in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”
The volume of prime mortgages that were past due by at least 60 days, more than doubled in Q3 from a year earlier to 838,000, according to a Dec. 21 report that was released by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
According to Professor Case and Professor Shiller, homeowners with no jobs and are struggling to pay for their mortgage obligations, will default on their home loans and increase foreclosures.
More than 7.2 million jobs were cut by employers over the last two years, the largest unemployment crisis since the Great Depression. “Unemployment is not respecting income boundaries,” Prof Case said in an interview. “It’s affecting rich people, poor people and middle-income people and they all have mortgages.”
He also added that the US may begin to see some signs of a housing recovery this year.
In Q3, the prime adjustable-rate loan foreclosure inventory rose to 10 percent, more than doubling from a year earlier, while foreclosure inventory for prime fixed-rate loans more than doubled to 1.95 percent, said Chief Economist Jay Brinkmann of the Mortgage Bankers Association in Washington.
“If you have a prime adjustable-rate mortgage resetting in 2010, you probably are going to see your rate go down,” said Mr. Brinkmann. “Still, prime ARMs are defaulting at a higher rate because these borrowers were the risk-takers who chose the initially lower payments so they could stretch to get into a house.”
Prof Case said that although the rising prime foreclosures will retard the housing recovery pace that began in September, it won’t completely lose its track. November home sales soared to the highest level in almost three years, a gain for the third consecutive month. Also, supply of new homes up for sale is at its lowest level in almost four decades.
“That’s taking some of the pressure off,” said Prof Case. “Hopefully in 2010 we’ll see some recovery.”