If you've got a home for sale at this time, God bless you. You're going to need it. And it's going to get worse before it gets better.
All of the economic signs are pointing toward a prolonged slump in the U.S. housing market.
This week, RealtyTrac, a leading online marketplace for foreclosure properties, released its third quarter U.S. Foreclosure Market Report, which shows a total of 635,159 foreclosure filings -- default notices, auction sale notices and bank repossessions -- were reported on 446,726 properties nationwide during the third quarter, a 30 percent increase from the previous quarter and an increase of nearly 100 percent from the third quarter of 2006.
The report also shows a foreclosure rate of one foreclosure filing for every 196 U.S. households for the quarter.
"August and September were the two highest monthly foreclosure filing totals we've seen since we began issuing our report in January 2005," said James Saccacio, chief executive officer of Irvine, Calif.-based RealtyTrac.
"Although not all areas are being hit as hard as others, the rise in foreclosures is quite widespread, with 45 out of the 50 states documenting year-over-year increases in the third quarter. Given the number of loans due to reset through the middle of 2008, and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets."
The S&P/Schiller Index showed that U.S. home prices fell nationwide in August for the eighth consecutive month.
The bursting U.S. housing bubble has not bottomed out and will continue to deepen well into 2008, according to Doug Duncan, chief economist and senior vice president of the Mortgage Bankers Association (MBA).
"We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively," Duncan said this week. "We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle."
The National Association of Realtors recently reported that existing home sales were 5.040 million in September, down from 5.480 million in August and 6.230 million a year ago. The median U.S. price fell to $211,700 in September, down from $224,400 in August and $229,220 in June.
"Clearly, the absence of financing for homebuyers with less than stellar credit records and the shortage of jumbo financing for prime loans above $417,000 is gripping the housing market and driving prices down," said Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.
Even U.S. Treasury Secretary Henry Paulson Jr., who is normally upbeat about the economy because he wants it to reflect positively upon his boss, acknowledges that it's getting ugly out there.
"We haven't hit the bottom yet in housing. It's going to take a while to work our way through this," Paulson said.
The collapse of the subprime lending market, which is tossing thousands of homes into foreclosure, is having a "trickle up" effect that is diminishing the values of homes all the way up to the $500,000 range in southeastern Wisconsin, according to Mike Ruzicka, president of the Greater Association of Realtors.
Boarded-up houses that are no longer owner-occupied are having property value-chilling effects on neighborhoods throughout the region, Ruzicka said.
"Local housing and real estate indicators tracked by the MMAC continue to follow the national trend of decline in this sector. Existing home sales in the metro area fell 26.9 percent in September, to 931, this indicator's sharpest year-over-year decrease of the year. Mortgages recorded in Milwaukee County also posted a double-digit decline, falling 15.2 percent, to 4,165," reports Bret Mayborne, economic research director for the Metropolitan Milwaukee Association of Commerce.
Many homeowners are facing a double-whammy. Even though the market value of their homes is declining sharply, their homes were reassessed last year at higher prices, thereby raising their property tax bills this year. In other words, their homes are suddenly worth less, but they're paying more in taxes.
The homeowners who are especially skewered are those who bought their houses during the land rush of the previous three years, paying top dollar at a time when offers were often in hand before properties were even officially listed. Those folks bought high, and now the market is low. And going lower.
Of course, the icy housing market doesn't just exist in a vacuum. It's bleeding over into all sectors of the economy. Consumer confidence is declining. The U.S. manufacturing sector grew at a slower pace for a fourth straight month in October, according to the Institute for Supply Management Index. The U.S. Commerce Department reported that consumers scaled back their spending in September as worries mounted about the worsening housing market and further credit market turmoil.
The market is having a chilling effect on the quarterly results of local companies such as A.O. Smith Corp., MGIC Investment Corp. and Marshall & Ilsley Corp.
In recent years, many consumers used their homes like ATM machines. They refinanced their mortgages and used the newfound equity to buy cars, boats and even vacation homes. That party is over.
They say the darkest hour is right before the dawn. Sorry to say, but if the experts are right, we haven't even reached dusk yet.
Steve Jagler is executive editor of BizTimes in Milwaukee and is past president of the Milwaukee Press Club. BizTimes provides news and operational insight for the owners and managers of privately held companies throughout southeastern Wisconsin.
Steve has won several journalism awards as a reporter, a columnist and an editor. He is a graduate of the University of Wisconsin-Milwaukee.
When he is not pursuing the news, Steve enjoys spending time with his wife, Kristi, and their two sons, Justin and James. Steve can be reached at steve.jagler@biztimes.com.
