A funny thing happened on the way to the housing bust: rising foreclosures of newer homes, which are increasingly competing with homes offered by builders in both price and quality. In the past, the new home market often rebounded faster than existing resales, but this time might be different. I pulled some stats from the early 1990s and compared this downturn with the last one and summarized it in my latest column for Builder & Developer magazine:
Whereas in the past homes being auctioned on the courthouse steps or offered by the REO departments of lenders were often old and in need of updating, many of today’s foreclosures are newer homes that increasingly compete with unsold new home inventory. The trend is startling: with buyers enjoying rising home equity during the first half of this decade and low teaser rates offered on sub-prime and Option ARM loans from 2004 through 2007, mortgage delinquencies either fell or rose very slightly, generally less than 2%. But as these loans began to re-set and borrowers found themselves unable to finance due to negative equity, by the first quarter of 2008 delinquencies spiked up by 30% and the first stages of foreclosures skyrocketed by 71% on the heels of a 40% jump a year earlier.
It seems reasonable to assume that such record jumps in housing inventory – homes that will have to be discounted in price to sell – will impact both the timing and trajectory for a new home market recovery.
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