Recent months of "nascent" housing recovery remain overshadowed by the delinquency pipeline that threatens to put as many as 2.7m distressed sales on the market, according to weekly commentary on US economics by Royal Bank of Scotland
Single-family housing starts jumped 38% from February to July, while new home sales jumped by 28% from March to July and existing home sales rose 15% over the same time frame, RBS said. The heavy use of the first-time homebuyer tax credit in summer ahead of its November 30th deadline may have contributed to the rise in sales.
"Given the lag time between a start and a completion, homebuilders and new home buyers probably had to act by July in order to feel confident that they would be able to claim the credit," said RBS economists, led by chief economist Stephen Stanley. "So, a portion of the increase in both starts and sales in recent months likely reflected activity being pulled forward into the summer."
Resales are likely to be soft in coming months if the credit expires and is not extended as some industry groups are calling for
Congress to do, according to the report.
New home inventory stood at 262,000 units in August, a 26-year low, RBS said. This slide in inventory is mainly due to a cutback in housing starts.
"[B]uilders have also done a decent job working down the completed home inventory," economists said. "In fact, the months’ supply of new homes stood at 7.3 months, not far off from the six months builders equate with a balanced market."
The inventory of existing homes held at 3.622m in August, 21% below the 4.575m peak in July '08. The dip may be due to various foreclosure moratoria as well as a delay in the process of foreclosed properties to reaching the market, RBS said. The typical foreclosure timeline is doubled in some cases from 12 months to 24 months.
Reasons for this delay in include banks struggling with the volume of cases, state legislation that allows some borrowers to stay in their homes for an additional three months, borrowers filing for bankruptcy and increased modification efforts, according to RBS.
The economists noted an estimated 1.2m loans are 90 plus days delinquent and another 1.5m homes in the foreclosure process but not yet possessed by the bank. While much of this 2.7m-unit overhang in potential foreclosure inventory looks likely to enter the market at some point, the timing of these foreclosures hitting the market will play a key role in continued recovery.
"A housing market that is just beginning to climb from the ashes would be unable to handle influx of nearly 3 million additional homes for sale all at once," RBS economists said. "However, if the rise in foreclosures extends well into 2010 and beyond, which seems a distinct possibility given the lengthened foreclosure timeline, then the additional supply might be more easily absorbed, particularly if the economy and jobs are growing relatively robustly."
Write to Diana Golobay