8/25/09 – Real Estate still in crisis mode

Real Estate remains the biggest risk to the budding worldwide recovery and strong stock markets. A recent report from the Mortgage Bankers Association was filled with red flags:

    • The combined percentage of loans in foreclosure and at least one payment past due was 13.16 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey (1972).
    • As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five.
    • “As for the outlook, it is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves.” Unfortunately, most economists don’t expect unemployment to peak until mid-2010.


Link to report: http://www.mbaa.org/NewsandMedia/PressCenter/70050.htm

Likewise, commercial real estate is wobbly. According to The Moody’s/REAL national commercial property price index, the US commercial property market has declined by 35.5% from its peak. Sales volumes are very low suggesting that prices could fall further if there is an increase in distressed sales.

Realpoint, a credit-rating agency, says that nearly $29 billion of commercial mortgage-backed securities, around 3.5% of the total, have become delinquent in the past 12 months. Analysts project the delinquency rate will peak somewhere between 6% and 12%. Most of these loans are held by banks. Experts are predicting many small banks will go under as a result.


Investors need to keep a close eye on the real estate markets as further deterioration could harm the economy, consumer sentiment, and stock prices.