Many mortgages that are underwater do not result in defaults. The likelihood of default increases when the home owner suffers other financial stress. An example of such stress is loss of employment and, of course, unemployment is still rising. If the employment picture were to improve, the number of underwater mortgagees staying in their homes would be greater than it will be if unemployment doesn’t peak for another 1-2 years, which was the situation after the last recession in 2001.
The Reuters news release does not mention how Deutsche Bank views the employment outlook. Yoon does point out that the projections contrast with recent data, which may imply that Deutsche bank does not see an improved employment picture developing. Yoon wrote:
Deutsche’s dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.
Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.
I think we are not at bottom yet. Banks will continue to suffer as lay offs, business closures and down sizing continues.
It looks to me like mid to late 2012 before we see any kind of ‘real’ market recovery and 2020 before the economy is back to 2006 levels.
By: pobept on August 7, 2009
at 4:43 pm