The debate has shifted in the last few months with many now feeling that the credit crisis is behind us. Many are now looking forward thinking that the worst in the housing market is here and we are now nearing a short-term bottom. However, others have likened the current environment to being in the eye of a hurricane; that is, the calm right now is very temporary and we still have a large storm heading our way. In this article we want to examine 5 key housing stats that still show major weakness in the U.S. housing market:

#1 - Delinquency Rate

*Source: Wall Street Journal

The first item we want to examine is the concentration of delinquencies. We still need to remember that many states across this nation did not face massive appreciation during this decade. The few inflated regions appear to be congregated in the Southwest (in particular California and Nevada), Northeast, and Florida. If you look at the above chart, the darker regions show higher distress areas; you can see that California and Florida are facing some very challenging times ahead. These areas also have large amounts of inventory and with the doors closing on lax lending, many families in these areas are unable to get loans. The market has dwindled.

#2 - Case-Shiller Index

*Source: housingbubblebust.com

The second key point is rather a self-fulfilling prophecy. As prices went up, appraisers looked at recent sales to assess current prices, and prices kept going higher and higher. The opposite is now happening. Much of the sales in highly distressed areas are foreclosures, REOs, and short sales only suppressing prices further. We had a burst of realization by lenders that prices were not turning around and now, there is this exit out the doors pushing prices lower. This almost assures more price declines.

#3 - Energy

You may be asking what does fuel have to do with the current problems in the housing markets. Ironically, many of the out of the way sub-divisions in the Inland Empire in Southern California and other areas in Arizona are already hurting and adding higher fuel costs are only going to make long commutes that more unattractive. A long commute itself is unattractive and even during the boom, many builders were developing downtown areas seeing a renaissance in urban dwellings. The idea of the McMansion is now losing its luster and $4 or even $5 a gallon gas is going to hurt these areas even further. Expect to see ghost towns in some of these areas in the next few years.

#4 - Housing Starts

Aside from all the desperate short-term fluctuations in housing stats, the overall trend is clearly downward. What the above multi-decade low in housing starts shows us is that housing was extremely over built in this past decade. Until housing starts start trending upward by a significant margin, there really is no point in talking about a bottom. Builders are like a reed in the wind, they were the first one’s in and the last one’s out. They’ll come rushing in once the fundamentals make sense again but that is years away.

#5 - Consumer Debt

Finally, the consumer is completely strapped. Even with the rebate checks which amount to maybe 1 month of fuel and groceries, not much is going to change with the large amount of consumer debt. Consumers that have limited access to credit are not going to be in the mood to purchase homes. In fact, if the economy continues on a path that looks like a recession, consumers are going to tighten their belts even further. More and more of a consumer’s household income is now going to simply servicing current debt. The credit crisis will guarantee that this will go on for awhile longer given the bad debts on many lenders books.

When these key stats change, then we can start looking at housing really making a turn but we are still in the eye of the storm here.

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I’ve been reading many articles talking about those that are currently “walking away” from their homes. It is now common knowledge that some people are intentionally walking away from their mortgage commitments. When we talk about walking away, we are talking about a very specific group that can pay but is choosing not to do so. Of course choosing to pay can be an argument in itself; are we talking about someone who just had their rate reset and is going to pay 80 percent of their net income to their housing payment or are we talking about a speculator who realizes he cannot sell his home and is now simply letting the mortgage go into foreclosure?

I’ve also seen another argument stating that this group is hard to measure and how can someone argue from a group that has no hard data. This stems from the fact that there is relatively little data collected from this subset of borrowers that are now walking away. However saying that this is a small group is like saying there are no drug dealers simply because we cannot measure them statistically.

It is easy to measure home inventory, sales, and defaults for example because this is hard data that is easily accessed. But given that we are only a short time into this housing bust, this is a new phenomenon so we are only going by leading indicators. Take a look at the incredible jump in foreclosures and notice of defaults for California:

“Sinking home values and the collapse of flimsy mortgages fueled a record number of foreclosures in California in the first three months of this year, dimming prospects for any quick recovery in the housing market.

The number of homes lost to foreclosure rose to a record 47,171, more than four times as many as a year earlier.

Default notices — the first step toward foreclosure — were sent to owners of 110,000 California homes from Jan. 1 to March 31, according to La Jolla- based DataQuick Information Systems. That’s about 1.4% of the homes in the state.

Defaults are up 143% from the same period last year. Homeowners in default can avoid foreclosure by catching up on payments, refinancing or selling. But fewer are doing so.

Just 32% of the properties in default will avoid foreclosure, DataQuick estimates, down from 52% a year ago.”

That 32 percent number is stunning. Obviously the inverse of this is true meaning 68 percent of those properties will end up in foreclosure. Now how many of these people are defaulting intentionally or are actually losing their home and are struggling to maintain the current payment? In California many lenders that try to contact borrowers in trouble simply do not respond to any form of help:

“Lenders have asserted that some homeowners simply choose to abandon homes with declining values, even if they can afford to make payments.

Babette Heimbuch, chief executive of FirstFed Financial Corp. of Los Angeles, says about 50% of her company’s delinquent borrowers do not respond to requests to discuss modifying their loans.”

Now that is a hard number we can use and deduce what is occurring. It should be rather apparent that someone that is not making payments and is choosing not to respond to the lender is either consciously choosing to avoid payments or is for whatever reason, refusing to open a line of dialogue. But 50 percent is a very large number of delinquent borrowers that are choosing not to respond here in California. What this is telling us is programs such as Hope Now are not as effective as they should be because in states like California that had enormous price gains many owners are simply choosing to let their homes go. Can we give a hard number to this? Of course not and we probably will never have any hard data on this. At the end of the day, we will have foreclosure and notice of default numbers but this group does not lend itself to sampling. After all, even the lenders are having a hard time reaching them.

This isn’t only happening in California. In Florida we are seeing condo speculators “walking away” as well. Take a look at some numbers for Florida:

“According to a recent Internet survey of 487 Florida condo and homeowner associations by the Hollywood-based law firm of Becker & Poliakoff:

• 51 percent said that mortgage foreclosures were creating a revenue shortfall and a burden on the association’s finances.
• 37 percent said they have raised maintenance fees to cover the shortfall.
• 43 percent said they have units that have been unoccupied for at least six months because of mortgage foreclosures.

And that’s a small sampling. There are 7,149 condo associations in Miami-Dade and Broward counties alone, according to the Florida Department of Business and Professional Regulation.

Kelly Ladwig, treasurer of the Townhouses of Plantation, said her board recently doubled maintenance fees after taking over the association from the developer, who converted it from rentals to condominiums.

And even with the higher fees, the community may yet have problems because so many people — possibly as many as 50 percent — haven’t been paying.

”A lot of people bought here as investors, and they were not able to sell. We now have a high foreclosure rate/nonpayment rate,” said Ladwig, whose day job is as a financial analyst for a commercial real estate firm. “That’s directly affecting the financials.”

Even if unit owners can find a buyer, Ladwig said, some banks are looking at the association’s books and refusing to make the loans.

This could also block condo owners who try to refinance their loans.”

Again, we don’t have a hard number giving us an exact percentage of how many people are walking away but we can figure out that many speculators bought, realized they paid way too much and now are underwater, and are left with the choice of feeding a property alligator or hoping that eventually the market will turn around. The data is showing us that many people paid way too much and realize this (after all these were supposedly investors so numbers do matter to them) and they are running the numbers and understand that they will not break even. How many of these are “walk aways?” I would venture to guess in areas like Las Vegas, California, and Florida the number is very large. It is nearly impossible to poll a group of investors and ask them, are you choosing to consciously allow your home to foreclose? Of course this data is not easily accessible. Walking away at least from the person doing it isn’t exactly something most want to cheer about. Especially for an investor because it makes you look not so intelligent. How many people bragged about the tens of thousands they lost in playing the technology bubble? Yet we know trillions evaporated and someone was putting that money in.

I doubt we’ll ever have a hard number of those walking away but by looking at ancillary data and news stories, we know many are.

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