Southern California Bankruptcy Law Blog

Missed Mortgage Payments And Falling Home Sales

Posted in Home Loans

Here’s the latest mortgage delinquency news from  E. Scott Reckard in the Los Angeles Times:

In an ominous sign for the housing market, the percentage of homeowners who have missed at least one mortgage payment has risen for the second straight quarter. . . . “It is clear that the downward trend we saw through most of 2010 has stopped,” the mortgage bankers’ chief economist, Jay Brinkmann, said after the report was released Monday. “Mortgage delinquencies are no longer improving and are now showing some signs of worsening.”  He said the number of missed mortgage payments typically increases when unemployment rises . . .

Adding to that cheery news, Greg Robb in the Wall Street Journal’s MarketWatch:

U.S. sales of new homes declined in July for the third straight month, a sign of continued woes in the housing market.  Sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000, the slowest pace since February, the Commerce Department reported Tuesday. Sales had reached 316,000 in April before slipping. “This report reminds us that the recovery cannot count on the housing sector adding much to growth,” said Joel Naroff, president of Naroff Economic Advisors.

Finally, Alejandro Lazo in the Los Angeles Times  adds this observation on the decline in new home sales:

Newly constructed single-family homes sold at a seasonally adjusted annual rate of 298,000, putting the industry on a pace to post the lowest annual sales since the Commerce Department began keeping data in 1963. . . . “This year is shaping up to be the worst year on record for new home sales,” IHS Global Insight economist Patrick Newport wrote in a note. “The economy is weak, uncertainty is up, as is the likelihood of a recession, and foreclosures and delinquencies remain high.”  The market for new homes has been weak since the collapse of the housing market five years ago.  Sales got a boost from special tax credits for first-time buyers through the first half of last year, but fell again once those credits expired.  New homes have faced stiff competition from foreclosures, while buyers have been scarce because of tight credit and a poor job market.

What does this mean for the economic future?  The general consensus is that housing is the main engine of the economy.  Yes, I know that will offend those who do important work in other industries, but the reality is that problems in housing created the current economic mess, and without a significant improvement in housing, the economy will remained stalled for the foreseeable future.

On a closely related topic, something I’m seeing with alarming frequency is a trend among desperate homeowners who have insufficient income to make their mortgage payments:  heavy credit card use to cover the mortgage.  This is a fast train to insolvency that won’t prevent the eventual loss of the house.  To add to the problem, such folks are typically underwater on the house, in many cases by a couple of hundred thousand.

A person in this situation needs a reality check.  Give up:  the house is lost.  File for bankruptcy and get rid of the debt – both credit card and mortgage debt.  Then move to a place that’s affordable and slowly rebuild.

The tough thing in this scenario is letting go of the emotional attachment to the house.  But economic decisions are best made with the head, not the heart.

If my anecdotal evidence is any indication of a broader trend, in the near future I expect to see another surge in missed mortgage payments, and a further drop in both new and used home sales.