In many of the hardest-hit markets,
distressed funds are the buyers
rather than long-term homeowners,
suggesting opportunistic use of capital
instead of a sustainable recovery.
Mortgage delinquency rates, while
slowly improving, remain above
historical numbers. So, real demand
for housing remains unclear.
Unemployment remains the
most significant economic
factor determining the length of the
current distressed cycle. It drives, or fails
to drive, the economic recovery,
including housing. While there is room
for improvement, over the eight quarters
from July 2010 to July 2012,
unemployment dropped from 9. 5
percent to 8. 2 percent. On average,
payrolls increased by 151,000 jobs per
month in 2011, and payroll figures have
improved in 2012, according to the
Bureau of Labor Statistics (BLS).
The relatively large bid/
ask spread that buyers have
seen during this distressed
cycle will grow, meaning
true distressed opportunities
beyond two years out
will be harder to find.
growth, and unemployment has been
more than 8 percent for several years. It’s
hard to see sustained improvement in
unemployment and a pending drop in
absolute and saleable NPL inventories.
The U.S. is in the fourth year of
increased distressed loan sale volume.
Bank earnings have continued to
improve, and corresponding levels
of loan loss reserves have allowed
many banks to strategically sell more
of their NPLs.
As their balance sheets improve,
banks will be able to sell more NPL
portfolios in the near term. Whether
they choose to do so is another matter.
Recovering balance sheets over the
next two years will reduce pressure
on banks to offload distressed debt
or at least enhance pricing power of
the sellers. The relatively large bid/ask
spread that buyers have seen during
this distressed cycle will grow, meaning
true distressed opportunities beyond
two years out will be harder to find.
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