“The single most important trigger event for delinquencies is unemployment,” Nothaft said. “Clearly there will be more significant job losses over 2009 and that will contribute to delinquencies on loans of all types.” Particularly troubling, he said, is that even prime borrowers with conventional, conforming fixed-rate loans are defaulting in higher numbers.
Weighing heavily on housing market forecasts is the continued decline in employment. Frank Nothaft, chief economist for mortgage agency Freddie Mac, said he expects unemployment will jump to 8.7% by the end of 2009, up from 7.2% today. And that in turn will push mortgage delinquencies and foreclosures higher, adding to an already bloated supply of homes on the market.
The job picture also dims consumer confidence, which is at or near historic lows, “making them afraid to go out and buy anything durable, and that certainly includes a home,” Crowe said. That is making it difficult to work off the excess inventory of homes for sale.
Crowe estimates that 6.2 million homes are vacant and on the market, with about one-third of those homes being new construction. He said that represents about 1.5 million units above what would be an equilibrium rate for housing.
“And adding to that static supply is the continued number of homes going into foreclosure,” he said.
Builders are making an effort to clear that supply, Crowe said, both by trimming housing starts and by cranking up incentives to move empty houses. A recent builder survey that asks about concessions being made found just 12% across the country saying they were offering nothing in the way of perks versus 50% who in 2003 said that.
Those concessions include price reductions and the addition of amenities at no cost. “Virtually all builders are doing something extra to move houses,” he said.
Home prices will continue their slide in 2009 and may well keep falling into 2010, said David Berson, chief economist for mortgage insurer PMI Corp. The company’s winter forecast shows that of the top 50 U.S. metropolitan areas more than half have a 50% or greater risk of seeing lower home prices two years from now as they do today. In some hard hit markets such as Las Vegas, that risk is about 90%, he said.
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