Foreclosure data released last week showed that the Big Bad Wolf is once again at the housing market's door. Reflecting on the poor homebuilders, the banks, and their houses made of subprime straw, I wondered: Have things ever been worse for these little piggies?
As bad as it's ever been -- almost
Since the ugly fourth-quarter 2009 data released last week by number-cruncher RealtyTrac dates back a scant four years, I instead consulted the more extensive archives of the Mortgage Banker's Association (MBA). Its statistics trail back through a series of hard times, all the way to the inflationary days of the 1970s. Regarding the fourth quarter of 2008, the MBA tells us that "the combined percent of loans in foreclosure and at least one payment past due ... are the highest ever recorded in the MBA delinquency survey."
While learning that things are the worst that they've been in nearly 40 years was a good start, I wanted to know how our current mess stacks up against the Great Depression. Armed with the MBA's fourth-quarter 2008 foreclosure rate of 1.08%, I was able to track down a St. Louis Federal Reserve Review article that puts the 1933 figure at roughly 1.3%. Given potentially different methods in how data was compiled, we may be comparing a Granny Smith to a Golden Delicious. Still, it appears that we're approaching a period of maximum pain, at least on a historical basis.
Aid? What aid?
Of course, during the Great Depression, a number of federal initiatives helped ease the extent of foreclosures. Today, we have the Obama Administration’s Homeowner Affordability and Stability Plan, but a foreclosure-killer this plan is not. For one thing, the refinancing component is limited to loans owned by Fannie Mae (NYSE: FNM ) or Freddie Mac (NYSE: FRE ) , and borrowers who are in the hole for more than 105% of their home's current value are also ineligible. As for modifying loans, if you're one of the few (it is only a few, right?) whose income has recently taken a hit, you may be out of luck.
Maintain a sturdy portfolio
As an investor, knowing that foreclosures are nearing Great Depression levels helps put the current situation in perspective, but it doesn't forecast the extent or the duration of the hurt that housing-related stocks have yet to suffer. For instance, Bank of America's (NYSE: BAC ) first-quarter 2009 $6.4 billion net addition to loan and lease loss allowances may accurately reflect the foreclosures still to come. Or not.
The only upside I can find in a steady stream of foreclosures is that Lowe's (NYSE: LOW ) and Home Depot (NYSE: HD ) might see decent revenue from property preservation contractors, the spackle-wielding folks hired to spruce up vacant homes in preparation for sale. Other than that, Fools, I recommend that you continue to build your portfolio out of bricks and mortar, and stay far away from sticks or straw.
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