Why Hopes of a Housing Recovery Are Prematurehttp://www.fool.com/investing/general/2013/01/07/why-hopes-of-a-housing-recovery-are-premature.aspx John Maxfield
January 7, 2013
The law of attraction says that a person can bring about a particular outcome simply by thinking about it in a positive light. A popular example is that if you open your mail expecting big, fat checks from long-lost relatives, then that's what you'll get -- though, it's probably worth noting that I've never been able to confirm this despite numerous attempts.
Humor aside, it's this same type of thinking that seems to have led many of us, myself included, to proclaim that the housing market is recovering. "We are undoubtedly well on the recovery road," the CEO of homebuilder Hovnanian (NYSE: HOV) told CNBC last November. "It's not a question of are we beginning it. I'd say it began at the beginning of this year..."
While multiple statistics can be cited to support this conclusion, as both home sales and prices have picked up over the past 12 months, there remains one that could threaten the entire edifice: the supply of homes that are owned, or soon to be owned, by banks.
As you can see in the chart above, the quantity of delinquent residential mortgages held by banks has anything but recovered of late, as the figure ascended to a record high in the third quarter of last year. In layman's terms, this means that the number of past-due loans added each quarter is exceeding the number subtracted. It's like a traffic jam on the highway. Early on -- right after, say, an accident occurs -- the rate at which traffic piles up as cars approach the scene exceeds the rate at which it releases after they pass the debris. It isn't until hours later, once the accident has been cleared, that the buildup begins to dissipate.
Importantly, this doesn't mean that more mortgages are going delinquent. Rather, to continue the analogy, the added congestion stems from an entirely new on-ramp that recently opened. In normal times -- that is