Housing Market Stumbles, Again

Last Updated Oct 21, 2011 10:21 AM EDT

Two weeks ago, mortgage rates fell to new all-time lows and I suggested this might mean we're on our way to a double-dip recession.

Many of you might say we never got out of the first one, and I might agree. Those Americans who live on Main Street continue to feel the pressure of the stagnant economy and many never felt any sort of recovery took hold.

Whatever the case, the evidence of what Federal Reserve Chairman Ben Bernanke calls a "faltering recovery" continues to mount. Recently released numbers on housing and mortgage trends indicate continued housing market troubles, dwindling incomes for many families and a glut of foreclosures with more on the way.

Bad news on the foreclosure front

There's news on the foreclosure front, and most of it is bad. According to RealtyTrac's U.S. Foreclosure Market Report for the third quarter, foreclosure filings â€" including default notices, scheduled auctions and bank repossessions â€" increased from the second (Q2) to the third quarter (Q3). Though the increase was marginal, many think it's a sign of what's to come.

James Saccacio, chief executive officer of RealtyTrac, certainly buys into that line of thinking. "This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace" after spending months trying to clear up foreclosures that may have been involved in the robosigning controversy.

The good news is that foreclosure filings from Q3 2011 are 34 percent lower than Q3 2010, but take that number with a grain of salt: the robosigning controversy caused a lot of banks to put off foreclosures until they cleared up the issues with their old inventory.

Need more evidence that foreclosures might ramp up again? Foreclosure filings increased in Q3 in 21 of the 25 metropolitan areas with the highest foreclosure rates and populations of 200,000 or more.

The housing market remains stagnant...

According to CoreLogic's recent release on U.S. Housing and Mortgage Trends, equity values have dropped over 10 percent from July 2011 and home prices have remained flat. This is due largely to the aforementioned glut of foreclosures, which sit on the market for months and drag home prices down with them. (One economist postulated that home values drop 1 percent for each foreclosure in the neighborhood.)

The RealtyTrac report shows market time for foreclosures at a record high in Q3, sitting on the market for an average of 318 days. Those that don't sell are returned to the bank and become REO's, sitting on the market for an average 193 days before being sold. If the reports are correct and foreclosures are on the increase, market time for both foreclosures and REO's could get even longer due to the sheer number available.

Existing home sales fell 3 percent last month, according to the National Association of Realtors, which surprised many in the industry who were expecting something better - especially since mortgage interest rates are still at near-record lows. Home sellers are poised to sell about 4.91 million homes this year - about the same number as in 1997. Demand still isn't strong enough for a true housing market recovery.

When you add new housing starts into the mix of existing homes on the market and foreclosed and bank owned homes waiting to be sold, you begin to get a picture of how oversaturated the market still is. Housing starts for privately owned housing were up at an annually adjusted rate of 15 percent from August, and single-family housing starts were up at an annually adjusted rate of 1.7 percent from August. This means more homes will be added to a housing market already drowning in inventory.

And your home probably won't sell anytime soon.

With the unemployment rate still high and the Federal Government deeply in debt, it's unlikely the housing market will bounce back in the near future. In fact, CoreLogic's report indicates the median household income nationwide fell from 2009 to 2010, down 2.3 percent to $49,500. With falling incomes and tighter credit restrictions, many of these would-be homeowners are unable to take advantage of the falling mortgage rates. Factor in the falling value of the dollar and you've got the answer to the question everyone's asking: why aren't houses selling?

It's tough to stomach the thought of a double-dip recession when we've barely recovered from the most recent one, but it looks like we might be headed in that direction.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.comand The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.
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    Ilyce R. Glink is an award-winning, nationally syndicated columnist, best-selling book author, and radio talk show host who also hosts "Expert Real Estate Tips," a Internet video show. She owns ThinkGlink.com as well as Think Glink Media, a privately held company that provides consulting, content and video services companies and non-profit organizations.

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