The bottom of the housing market in most U.S. cities will likely begin to form in 2014 as banks and mortgage lenders realize that homeowners who are unable or unwilling to pay their mortgages work with them to reduce the number of foreclosures.
The record breaking volume of foreclosures has started to decline along with delinquencies, but the slowdown comes mostly as a result of state and judicial cases against banks and mortgage lenders. New laws in a handful of states make it more difficult to foreclose on properties without direct proof of ownership.
The Mortgage Bankers Association 2011 fourth quarter survey of delinquent mortgages dropped 7.58% from 2010 levels. The delinquency rate includes mortgages that are at least one loan payment past due, but excludes those properties already in the foreclosure pipeline.
Combined home mortgages already in the foreclosure pipeline and loans in default accounted for 12.63% of present U.S. mortgages in the housing market, an improvement over the previous year. About one-third of all U.S. homes are free and clear of mortgages.
"Mortgage performance continued to improve in the fourth quarter, reflecting the improvement we saw in the job market and (the) broader economy," said MBA chief economist Jay Brinkman. “The total delinquency rate and foreclosure starts rate decreased and are back down to levels from three years ago.”
However, there’s little reason to celebrate yet for homeowners in most areas of the country, who are seeing their home values decline, since banks are historically slow to work with homeowners in default, and have little motivation other than increasing there profit margins to do anything else to help.
The glut of foreclosed properties will have to be cleared before the market begins to stabilize. An estimated 8-million homes are expected to be sold in the next six years as bank REOs and short sales, which sell for less than what is currently owed on the mortgage.
The performance of the housing market is directly tied to mortgage rates, which the Fed said will be kept low through its discount window at least through 2014. As a result of the over-supply of discount priced foreclosure properties home values in most cities should slide through at least then. But at least there’s some light at the end of the tunnel for the first time in years in the nation’s housing market.