Yesterday we were told that US existing home resales were up 7.6 % in April. The reason for this increase is the rush to benefit from the Federal subsidy which expires at the end of the month.
Today comes the admission from the head of the FHA that together, the FHA and the terrible twinds Fannie and Freddie, are 90% of the housing market. The main reason for this is that FHA makes 40% or so of its loans with a deposit of only 3.5% down. No bank will do that.
So add those two things together nad you find that 7.6% increaese is demand that has been pulled forward due to not one but twqo FED subsidies – the tax break and the deposit being several percent less than anyone else would even contemplate. As these deals filter through the figures in the next two months the sales will drop away. A good 5% of those sales have merely been mved up from the next two months leaving a 5% gap to look forward to.
The other piece of houseing news was that despite sales being up. The unsold inventory was also up – to 4 million unsold houses. That is a rise of 11%. Thus the log jam of unsold, and foreclosed property is grwoing faster, much faster than sales even with two subsidies.
Looking forward from hewre things look worse.
That 3.5% deposit is to help get people into houses and help make sure something sells. But 3.5% down means a 3.5% drop in value and – Welcome, to negaitve equity!
4 Million unsold properties already waiting. New housese being built. The bulk of non-performing loand either not foreclaosed or just in suspended animation somewhere in the process or being held by banks in off-balance sheet vehicles. How long they can be carried I have no idea.
I thnk we will see a whole brand new raft of negative equity casaulties by mid ’11.