Wednesday, April 23, 2008

Credit Suisse Forecast: 6.5 million Foreclosures by 2012

by Calculated Risk on 4/23/2008 08:28:00 PM

From Reuters: Foreclosures to affect 6.5 mln loans by 2012-report

Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012 ...

The foreclosures could put 12.7 percent of all residential borrowers out of their homes ...

Credit Suisse expects home prices will fall by 10 percent in 2008 and 5 percent in 2009, before rebounding.
The forecast includes the 1.2 million homes currently in foreclosure or already bank Real Estate Owned (REO). Credit Suisse sees 2008 as the peak year for foreclosures, even though they see the price bottom (25% off the peak) in 2009. The normal pattern is for the foreclosure activity to peak in the same year as housing prices bottom. Note: I expect prices to decline for a few years in the bubble areas.

Of the 1.2 million current foreclosures, Credit Suisse estimates about half are due to subprime borrowers, and about half other borrowers (alt-A, prime). Although Credit Suisse expects a much higher percentage of subprime borrowers in foreclosure (over 50%!), the pool of other borrowers is much larger, and Credit Suisse expects close to 4 million other borrowers to lose their homes to foreclosure through 2012.