Friday, January 15, 2010

Understanding Why More Housing Foreclosures This Spring and Summer Won't Have the Same Downward Price Impact It Did in 2009

The coming flood of housing to the market is simply being factored into the equation, now.

No one is aggressively jumping to buy real estate and many are waiting for more downside before buying. All this is pushing current housing prices more in line with where they will be by this summer.

I am not saying that there is no downside from here, but it is not likely to be severe, if there is any at all.

It's the same with the banking sector. The banks are factoring in the hits they are going to have to take. JPMorgan Chase which just reported whopping earnings also reported that they have hiked loan loss reserves to $32.5 billion, or 5.5% of total assets!


  1. imo

    So long as you have the unemployment rate keeping steady at this level, you will have a constant stream of foreclosed homes on the market. Will it match the massive implosion we've seen already? Your guess is as good as mine. You do, however, have a good many banks on the ropes already and if they get just enough downward push on the value of their repossessed (and soon to be repossessed) collateral, you might see a big swing in bank closures, not to mention another waves of cheap fire-sale real estate hitting the market (both 1-4 family and CRE).

    Watch these Call Reports coming out in the next few weeks (the filing deadline is the 30th). There was a very good reason the FDIC got the surviving banks to ante up three years worth of insurance premiums on 12-31--they're going to need every bit of it.

    This will also make the Fed, and the rest of the stimulus posse, wonder whether to keep the money 'opium' flowing. Artficial bubbles have to be tended to, you know.

  2. the difference between bank stocks and the housing market is that you can't short the housing market. therefore, the price is set by the buyer who values housing the highest. with foreclosures being held off the market, it wouldn't surprise me if *some* buyers are finding 20-50% irresistible right now, even though a flood of supply is coming down the pike.