The housing market overall has now stabilized and is set to marginally improve going forward, according to an Oct. 9, report by Amherst Securities. But how it improves will recovery will vary by price range, location and seasonal adjustments to distressed property sales. These same factors also define how MBS deals are impacted.
According to the report in judicial states -- those in which a court order is necessary to proceed with the foreclosure process -- it will take much longer to clear the distressed housing inventory than the non-judicial states. As of Sept. 2012, the average non-agency MBS deal has 58% non-judicial loans (42% judicial) by balance; 63% non-judicial loans (37% judicial) by loan count according to CoreLogic, 1010Data, and Amherst data.
Higher-priced homes are also likely take longer to clear than lower priced. The better investor bid for lower priced homes means that non-agency subprime MBS deals, with a greater concentration of lower priced homes should continue to experience a lower foreclosure discount.
"This will eventually translate into a decline in severity," explained analysts in the report. "By contrast, higher priced homes are likely to struggle much more going forward, suggesting little narrowing in the foreclosure discount."
Amherst analysts also anticipate a larger share of distressed properties to come onto the market this winter. The number of distressed properties on the market tends to vary seasonally. Since 2008, distressed shares on a month by month basis tend to bottom out over the summer months, then begins to climb, peaking in February.
As a result, distressed sales make up a larger part of fall and winter sales than of spring and summer sales, which drags down the house price in the winter months, said the report.
"The housing market has clearly stabilized," said Amherst analysts in the report. "However, the effect of a decrease in the share of distressed sales will not be uniform across the nation. "