Barclays expects foreclosures to sap housing demand
Foreclosures are moving into real-estate owned status quicker and quicker, Barclays Capital (BCS) said Friday. Currently, the market can handle the rate at which the properties move onto the market. However, if the roll rate of foreclosure to REO continues to increase greatly, the market for these properties may begin to soften. "?Although REO supply and demand are currently evenly matched, the glut of foreclosed homes in the pipeline should eventually cause REO supply to far exceed REO demand," said the analysts in a note to clients. Barclays also warned that the existing timeline of defaulting loans will only ramp up in the future. "Severities will remain elevated, even rise, in the near term, but are expected to fall 18-24 months from now," Barclays said. The analysts also noted that foreclosure timelines in judicial and non judicial states are getting closer in length (see chart below). As far as what investors should look for, Barclays called non-agency yields attractive compared to other risk assets, adding that its favorite trade in the non-agency cash space is the jumbo/alt-a fixed rates with and without leverage. "We also like subprime seasoned mezzanine bonds with perma fail/pass triggers," Barclays said. Write to Kerri Panchuk.