It's Not Over Till It's Over

Mike Morgan, a Florida real estate broker specializing in helping lenders dispose of foreclosed homes, has a strong piece in Barron's arguing that signs of hope in the housing market are masking more trouble to come. Basically he says that foreclosures have mostly stopped for awhile, but will start up again soon. Here's the guts of it:

The asset managers we work with have warned us to expect a flood of properties, beginning in early June. This will hit as the number of potential buyers continues to dwindle. Builders, traditional sellers and investors who entered too early are already loaded with REO properties.

. . . Potential buyers can't purchase homes when they are losing their jobs, regardless of how attractive the credits and mortgages are. The price of homes will continue to fall until the properties are affordable for potential buyers.

. . . There's no light at the end of the tunnel yet. We're still supporting builders through misguided programs that are only adding to the inventory woes. California decided to offer a $10,000 credit to buyers of new homes, on top of the $8,000 federal credit. But California made the $10,000 available only for new homes purchased directly from builders. That shows the power of the builders' lobby, but it only adds to California's housing-industry problem. It encourages builders to construct dwellings we don't need, and it penalizes anyone else trying to sell a home.

Housing inventory soon will flood a market in which more than 500,000 homes are being built each year, even though the annual sales pace for new homes is closer to 300,000. We must also deal with a system clogged with impossible short sales, a surge of second and vacation homes being dumped, and third-wave flippers realizing that they entered the market too soon.

It could be that his perspective is warped by the seriousness of the problem in Florida. Or, it might just be that there's considerable additional trouble ahead for all of us.

PS--David Sokol, one of Warren Buffett's top people, seems to be in accord with Morgan, at least in this Reuters story. He says more foreclosures are coming and theres' a huge "shadow backlog" of homes whose owners would like to sell but don't want to get lost in the forest of for-sale signs already on their street.