US house sales rise as foreclosure increases

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The US housing crisis is still getting worse, causing the weekend collapse of Guaranty Bank, the 11th largest US bank failure. As the Wall Street Journal notes, this marks a “new stage” in the banking crisis. Guaranty Financial had bought low quality, “toxic” mortgage loans, and its woes illustrate the “boomerang effect” that is now hitting thousands of small to medium sized US banks.

The problem, as the Independent Community Bankers of America note, is that most low quality mortgage loans “have declined in value, and it is not clear when they are going to come back in value, if at all.” Whilst the Mortgage Bankers Association warn that “more than one in eight homeowners (are now) delinquent or in the foreclosure process“. And Deutsche Bank calculate that 27% of US homeowners (14m) now owe more on their mortgages that their homes are worth.

Thus it is not really good news that US sales of existing homes rose in July, as shown in the above chart (blue column). For new data shows that “two-thirds of (existing) home sales are either foreclosures or banks taking a loss on the mortgage“. And the 13% rise in inventory (red line) since January suggests more forced sales are in the pipeline.

Financial markets continue to believe in a quick V-shaped recovery. But wishful thinking of this kind would be dangerous for chemical company Boards. Today sees the end of an important source of recent demand, as the US “cash for clunkers” auto stimulus programme finishes. And with US banks now failing at the fastest rate since 1992, the blog fears that the outlook for demand is unlikely to see much medium-term improvement.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


One Response to US house sales rise as foreclosure increases

  1. bank foreclosure listings guy 15 September, 2009 at 8:33 pm #

    What about the bank foreclosures? The listings are full of properties to sell… Banks are collapsing but the houses are there for sale!

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