Amid the optimism regarding the US economy that is reasonably commonplace these days, it is worth highlighting one sector that will continue to represent a headwind for some time to come, namely housing.
As highlighted recently in a detailed Reuters article, and separately by RealtyTrac, there is a wave of foreclosures likely to be unleashed on an unsuspecting housing market over the next few quarters as banks are now in a stronger legal position to enforce their security. Recall last year that banks were hamstrung for a time by the robo-settlement question, which has now been resolved in their favour. Prior to the robo-signing debacle, the monthly rate of foreclosures averaged around 330K, whereas since late 2010 it has fallen to around 230K. As such, it could reasonably be argued that there are an extra 1.6m homes to be foreclosed.
According to RealtyTrac, those states that use a judicial process to impose foreclosure (26 states in all) experienced a 8% increase in Q1, whereas those states using a non-judicial system recorded a decline of 8%. Some judicial states such as Connecticut, Indiana, Florida and Massachusetts registered increased foreclosure of more than a quarter in Q1. House prices in these judicial states could well be under further downward pressure in the months ahead.
Officially at least, the inventory of unsold homes has halved since the middle of 2010, from twelve months to around six months, which is a six-year low. However, some of this decline is artificial; as foreclosures accelerate this year we can expect this inventory to head higher once more. On a national level, house prices are still declining – the composite measure of twenty major cities compiled by Case-Shiller fell by a further 4% in the year ended January.
Should the foreclosure prognostications of RealtyTrac prove to be accurate, then house prices are unlikely to be rising in the US any time soon.