Housing Kool-Aid.

Continuing signs that the housing recovery has not begun, are reflected in existing home resales which fell in March by 2.6%.

In spite of distressed sales lagging February by 15%, they still amounted to 30% of all real estate deals in contract during the month. No, we are not even remotely near the beginning of a recovery. And, we still have another 3 million homes entering foreclosure in the next six months, which by the way, will account for 8.3 million children being misplaced (according to First Focus) due to foreclosure. Children don’t do well being yanked out of their neighborhoods and classrooms in the middle of a school year – or anytime, I suppose.

In addition, Homebuilder sentiment ebbed in April for the first time in seven months as prospective buyers remained hesitant to pull the trigger, the National Association of Home Builders said on Monday.

The NAHB/Wells Fargo Housing Market index slipped to 25 from 28 in March, shy of economists’ expectations for the index to hold steady at 28. The index has a long way to go to the 50 mark that indicates more builders view market conditions as favorable than poor. The index has not been above 50 since April 2006.

“What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” NAHB chief economist David Crowe said in a statement.

“This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery – particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”

The single-family home sales component fell to 26 from 29. The gauge of single-family sales expectations for the next six months eased to 32 from 35, while prospective buyer traffic waned to 18 from 22.

In more good news, the overall foreclosure activity fell in the first quarter to the lowest level in more than four years, but mainly because the process of removing people from their homes has slowed. The number of homes just beginning the foreclosure process rose in March for a third straight month, another sign that the nation’s housing problems are far from over, according to RealtyTrac.

“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of RealtyTrac.

He said a large backlog of bank-owned properties that has accumulated over the past few years will put added pressure on the housing market when banks eventually list them for sale. “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen,” he said in a news release.

New foreclosure filings, which indicate lenders are beginning the process of repossession, rose by 7 percent in March, the third straight monthly increase. Foreclosure starts topped 100,000 for the first time since November 2011, although they were 11 percent lower than a year ago. The 26 states that typically require a judicial review of a foreclosure saw the pace of filings pick up in the first quarter.

The year-over-year pickup in filings in the first quarter was highest in Indiana (up 45 percent), Connecticut (up 38 percent), Massachusetts (up 26 percent), Florida (up 26 percent), South Carolina (up 26 percent), and Pennsylvania (up 23 percent).

States with the biggest monthly increases in foreclosure starts included Nevada (up 153 percent), Utah (up 103 percent), New Jersey (up 73 percent), Maryland (up 53 percent) and North Carolina (up 47 percent).

Nationwide, the length of time it takes to complete a foreclosure continued to rise — to an average of 370 days in the first quarter from 348 days in the previous quarter. The process is picking up in some states, though. The average time to foreclose in California was 320 days, down from 352 days in the fourth quarter of last year.

The process in some states, though, is taking considerably longer. Foreclosures are taking the longest, on average, in New York (1,056 days), New Jersey (966 days), Florida (861 days), Illinois (628 days) and Maryland.

Great news for “squatters”, but not so good news for banks.

My solution has always been simple, and relatively cheap: The banks write-off the existing loans, then renegotiate new loans at today’s interest rates and current values, with the owners. That will solve 50% of the problem. The mortgage-holders who cannot pay even re-negotiated loans should be allowed to remain in those homes, and pay what they can in the form of rent while retaining title. They should be credited with the actual mortgage reduction component of their payments to-date, so that when the market does recover, the will have some equity to show for what they did pay, and should be required to do a financial review every year with their lender to determine a fair amount of rent. There are lots of ways the banks could address this issue without foreclosure, but that would require a different type of banker, and I don’t have high hopes.

In the meantime, for those of you who still think that prices have bottomed and the housing market is in recovery, you might want to think again. Permits are up but we’re not building. Interest rates are lower than they’ve ever been, but were not buying. Houses are being sold, but only as distressed properties. How long do you think this is going to go on? You won’t like my answer. I can hardly wait for the Q2 numbers.



About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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