February 16, 2007: Housing, foreclosures and status

The housing market is in a free fall in some areas, stagnant in others and up in precious few.

In January, 130,511 homes were in foreclosure, up 20% from last year. January's level was 19% above December's results. This is significant.

In January, five states represented 47% of all foreclosures in the country. For comparison, these five states represent 32% of the nation's total households. Texas had the most foreclosures, California second, Florida third, then Michigan and Ohio.

Looking at trailing three month statistics to forecast trends, foreclosures were up 41% nationally from last year. Key state changes include Michigan (up 109%), California (up 101%), Colorado (up 92%), Nevada (up 68%), Arizona (up 51%), Texas (up 21%) and Florida (up 8%). These are up from already high levels.

Across the country in January, there was one foreclosure for every 954 households based upon Census estimates. One major brokerage firm takes the position that the upward trend in foreclosures is indicative of the heightened leverage taken on by home buyers through the past several years of price appreciation and record-low interest rates. Easy money kills.

There is a concern amongst builders that the potential inventory overhang that will result from foreclosures will not be felt for another several months, as default notices take about five months to work through the system. Thus, the housing slump will continue past this summer well into fall with no significant relief.

With the sub-prime mortgage business practically ruined, lenders are tightening standards, thus lowering the number of individuals qualifying for a mortgage loan. This is a good thing long term, but it will have a negative impact on home sales across the nation.

Credit Suisse analysts feel that investors are not paying enough attention to this longer downturn in home sales and construction, and to the impact of tighter credit standards.I believe that home builders and many REITs are now overvalued - and then some.

Another tidbit of information. I reviewed all of the states' three month trailing numbers as of January 2007 foreclosures in comparison to the three month trailing numbers ending January of 2006. They are interesting.

Massachusetts is up 825% (9,720 to 1051)
Alabama is up 558% (1,999 to 304)
Louisiana is up 282% (1,409 to 369)..so much for blaming Katrina
Minnesota is up 223% (2033 to 629)...630 once Al Franken looses his
North Carolina is down 12% (4,666 to 5,322)
South Carolina is down 44% (1,277 to 2,270)
New Mexico is down 58% (895 to 1,619)

Eleven states recorded "down" numbers. Thirty-nine recorded "up" numbers.

I have additional state and region data. If you have a specific request, e-mail me.