Mortgage Default Information

Used Home Sales Fall

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In Brief...

In October, existing home sales ran at a seasonally adjusted annual rate of 4.43 million. Regionally, sales were down on the month in all four Census regions, ranging from a 1.1% decline in the Midwest, to a 3.4% drop in the South. Year over year, the declines ranged from 21.4% in the West to a 32.4% drop in the Midwest. Median prices fell in three of the regions, with the biggest drops in the West, down 4.8% and the Midwest, off 3.6%. If you have a house that could only sell for $150,000 in the current environment, and you owe $200,000 on the mortgage, in effect you have the option of "selling" the house to the bank for $200,000 simply by stopping writing the checks.. In October, inventories fell by 3.3% to 3.86 million, but remain well above the year-ago level. As you can see for the second graph it is as bad now as it was during most of 2008 when home prices were in a freefall. Fortunately, relative to incomes and rents, home prices are not as absurdly overvalued as they were then, so the magnitude of the coming price declines is likely to be a lot less over the next year than the 30% plunge in 2008 and early 2009. If housing prices fall more than 5%, then all of them will also be underwater, and lots of homes that are only slightly underwater (where non-financial considerations tend to dominate) will become deeply underwater.. However, with falling home prices it is likely that the pace of foreclosures will pick up again.

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