Let's pretend that the Housing Market is a person. We'll call it "HM". People like you who work in the mortgage industry care a great deal about HM, because he is the source of all of your business – one way or another. When HM is healthy and happy, you do well. When he isn't, your life tends to go about the way it has been going for the last five years. So you really want things to go well for HM.
The good news for HM is that home prices have shown some modest recovery this year. But the bad news is that the number of home sales is declining. Home sales are very important to our friend HM, because they have a lot to do with his self-esteem and overall sense of well-being. It's sort of like the way you would feel if you looked at your 401(k) and realized it is now worth a lot less than it was five years ago.
HM cares a great deal about his girlfriend, Consumer Confidence. In a sense, if she's happy, he's happy. But unfortunately, she's not very happy – consumer confidence has been dropping like a rock. At this point, our friend HM has got to be worried that his girlfriend is about to break up with him, maybe even permanently.
The Housing Market is basically your meal ticket, so you really want to help "him" (and in the process, help yourself) – but you're not sure what to do, because let's face it, our pal HM has a lot of problems!
Home values are still roughly at 2001 to 2003 levels (pre-bubble).
Home sales are at record low levels in spite of the fact that inventory remains high (despite some claims to the contrary), prices are low, and mortgage interest rates are also at record low levels. Ordinarily, you would expect this to bring home buyers out of the woodwork to take advantage of these classic Buyers Market conditions, but that hasn't happened. That's because consumers are worried about their jobs, their finances, the economy, and the possibility that home values have not yet hit bottom. No one wants to own a declining asset.
25-35% of all the home sales in this country are distressed properties (foreclosures and short sales). Those homes sell for less than comparable non-distressed properties. Potential Sellers are afraid to put their homes on the market because they will lose too much equity. This results in far fewer move-up buyers. The housing market today consists essentially of first-time buyers and investors, and many of the people who would ordinarily be first-time homebuyers have decided to rent instead, for the reasons I stated in the preceding paragraph -- and because, to the degree there is a shortage of inventory, it's at the lowest end of the price range -- the kinds of homes many first-time buyers look for.
And, as if all of that were not bad enough, we are still looking at an enormous "shadow inventory" of delinquent mortgages, estimated at between 4 to 5 million homes – a huge backlog of inventory that hasn't even hit the market yet. At the rate that homes are being sold today, this would add more than a year's supply to our already bloated national housing inventory.
So one way of looking at our friend HM's predicament (and yours) – would be to say that he has an absolutely massive case of constipation. If you want to help him, and yourself, and frankly, the whole country – you need to be bringing the laxative, and lots of it.
Next: "But I'm just a loan officer, not a doctor!)