Housing/Foreclosures 2012: More Malaise Until a Bottom is Found

Nearly five years since the housing market’s bubble began to burst, the consensus for 2012 is for more of a snail’s pace recovery, with home prices bottoming out possibly by the end of the year.
But even housing market experts are finding it difficult to forecast when a solid recovery will take hold in their outlook for the next five years.
A survey last month compiled by the real estate site Zillow took 109 responses from a group of economists, real estate experts, and investment and market strategists.
The most optimistic quartile of panelists projects nearly 18.3 percent home price growth over the next five years, while the most pessimistic quartile projects a 1.4 percent decline, Zillow said.
And even more difficult is finding a resolution to the foreclosure crisis, which reverberates throughout U.S. neighborhoods in the form of depressed values and abandoned properties.
The gnawing reality persists that an estimated one-third of borrowers are “underwater” on their mortgages, owing more than the value of their homes.
Despite persistent record low mortgage rates, negative equity is keeping many homeowners from entering the most affordable housing market in decades.
“There is a consensus among the nation’s top housing experts that we have not yet reached a bottom and are instead working through a prolonged bottoming process,” said Dr. Stan Humphries, Zillow chief economist. “Negative equity, unemployment and low consumer confidence remain the key factors delaying a true recovery.”
Last month’s Zillow Home Price Expectations Survey shows that U.S. home prices are expected to decline 1.57 percent in the fourth quarter of 2011, after falling 0.4 percent through September. Prices are forecasted to decline until the market’s bottom is reached in late 2012 or early 2013, Zillow said.
Meanwhile, distressed properties continue to weigh down the housing market.
The pre-sale inventory of foreclosed homes reached an all-time high of 4.29 percent of all active mortgages in October, according Florida-based Lender Processing Services. The rate for November will likely fall just below that at 4.16 percent.
While mortgage delinquencies have been generally on the decline, the total U.S. loan delinquency rate for November (loans 30 or more days past due, but not in foreclosure) is at ​ 8.15 percent, a month-over-month increase of​ 2.7 percent.
When it comes to mortgage relief for those facing foreclosure, there is also much uncertainty in the months ahead. By the end of 2012, the Obama Administration’s foreclosure prevention campaign, dubbed Home Affordable Modification Program, or HAMP, is slated to come to an end.
But HAMP has been riddled with problems, especially poor performances by loan services in getting mortgage payments reduced for those who are qualified. Critics say HAMP also lacks a fuller commitment from the government.
Consumer advocates, homeowners seeking help and lawmakers have been very critical of HAMP’s track record. The programs official Congressional overseer reported recently that an estimated 600,000 homeowners who are eligible for HAMP would not get a permanent modification before HAMP expires at the end of 2012.
HAMP has placed more than 880,000 homeowners into permanent modifications to date, but its goal was to assist 3 million to 4 million homeowners. More than 900,000 trial or permanent modifications cancelled.
Of the 45.6 billion earmarked for the program from bailout funds, only $2.5 billion (5 percent) has actually been used.
An end to HAMP would likely result in a surge in foreclosure inventories among lenders.  This would add further pressures to home prices, especially in hard hit areas.
In an article published for RealtyTrac, Peter G. Miller, a syndicated real estate writer to 100 newspapers and operator of OurBroker.com, said that HAMP program funds can dry up without new authorization  — a positive development toward balancing the budget. But hundreds of thousands of additional borrowers may face foreclosure without such a modification program in place.
“So the irony is this: Lenders may well use some of their political clout to support renewed HAMP funding,” Miller said. “It’s a program many lenders dislike, but it’s better than a marketplace without a modification option.”

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