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The Washington Post uncovers another economic fault line that has the potential to help derail what is already a fragile recovery:

The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.

The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.

COMMENT:  Remember the days when you were told that you could never lose money in real estate?  The people who told you that forgot to note the Florida real-estate bubble of the 1920s.  Too many Americans started regarding their homes as their fortunes.  Sadly, many are now paying the price.

Foreclosures are, to some degree, a function of unemployment.  The unemployment and underemployment numbers are stubborn.  We keep getting smiling faces at the White House, but they must be about something else.

March 12, 2010