Michelle Meyer, the well-known housing analyst for BofA/ML, has some bad news: The housing crisis isn't over.
In fact, in her 2012 outlook piece, she says it's "far from over" and that prices still have another 7% to decline nationally.
The basic problem: There are still tons more foreclosures or "liquidations" yet to come.
The most crucial input to our forecast for construction and home prices is our assumption for foreclosures. Our securitized products research team estimates another eight million homes will be liquidated over the next four years, which adds to the six million homes that have already been liquidated since 2007. All told, we expect 14 million foreclosures or a quarter of all homeowners with a mortgage
Why the acceleration in foreclosures? Basically because there's still an abnormally large backlog.
Currently, it takes between 25 and 30 months on average for a non-agency mortgage to transition from 60 days delinquent to liquidation, about double the amount of time it took back in 2008. The extended timelines reflect capacity issues with significantly more than normal mortgages in the pipeline, government mandated modification efforts and the nationwide investigation by the state Attorneys General on the foreclosure process. We assume that the latter is resolved in the near term.
National home prices have declined 33% from the peak in 1Q06 through 3Q11, returning to mid-2002 levels. In our view, this has left prices fairly valued relative to per capita income growth and rent prices. However, we expect prices to undershoot relative to fair valuation, declining another 7% from 3Q11 through 1Q13.
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