Home builders who fear that a wave of foreclosures is likely to deal housing a blow in the year ahead might be surprised by what Brad Geisen has to say. The president and CEO of Foreclosure.com, an online database of foreclosed homes, told listeners during a live Webinar on Thursday, March 13, that he believes the worst of the housing downturn is history. And if he's right, it might mean that the uptick in new-home traffic and sales over the past few weeks could amount to more than the usual post-Super Bowl blip.
"I think we have [hit bottom]," Geisen said during his online presentation. "I don't think it's going to get any worse."
Geisen's reasoning behind his assertion is simple: The whole foreclosure issue has been overblown.
Much of the foreclosure data circulating these days is flawed, Geisen said. Many foreclosure tracking organizations often fail to identify properties with multiple liens, so those properties are counted multiple times in the data. Moreover, many do not distinguish between homes that are in pre-foreclosure and those that have already been foreclosed upon.
Homes in pre-foreclosure are properties that are between a notice of default on a loan and a sheriff/trustee sale. In contrast, an actual foreclosure is a property that has gone through the entire pre-foreclosure process and is now owned by the bank.
"That makes things look sometimes worse than they are," Geisen said.
Moreover, Geisen said banks are over-dramatizing their exposure to foreclosures. Citing data released by the Mortgage Bankers Association, Geisen said roughly 2% of all loans are in the foreclosure process. However, Geisen added that as an industry standard, banks assume a 2% default rate; but many use a 5% default rate as a reserve default rate. Couple that with the fact that many of the mortgage-backed securities failing today were sold to foreign investors, and domestic banks' exposure to a foreclosure crisis is tempered, Geisen asserted.
Yet even in Geisen's self-proclaimed "true picture" of the foreclosure market, things are hardly rosy. Regional inventories of foreclosed homes are up, and the national foreclosed home inventory grew 30.49% since February 2007, according to Foreclosure.com data.
Geisen said that regional and national inventories are growing because markets like Florida and California aren't absorbing foreclosures as quickly as they are coming into the market. However, looking closer at the data, he said the good news is that the total number of new foreclosed homes is down from last year. In fact, nationally the total number of newly foreclosed homes declined 3.8% from a year ago, with the South and Midwest showing considerable decreases of 18.97% and 15.11%, respectively.
Geisen said there are other economic and political forces at work that further support his conviction that housing has reached an inflection point. Interest rates are low, unemployment is near historical lows, and GNP is relatively strong. Add to the mix the government's plan to swap out mortgage-backed securities for Treasury bills, which adds liquidity to the market, and housing could be on the mend sooner rather than later.
"I'm feeling by June, the market is going to be going very strong," Geisen said. "And one thing that a lot of people don't talk about is the election. A lot of people want to wait to buy until after the election. So, I think we're going to see a surge after the election."
But new-home builders may have to wait to celebrate the return of the market. Geisen said he anticipates a lag for a new-housing market recovery. "How long that will be depends on how quickly investors are going to gobble up those [foreclosed] properties," he said.