Without the moratoria, the percentage of foreclosures as a percentage of total loans outstanding is already at the extended rate of 4.6% – 288,000 homes were seized in third quarter alone.
The effect of the moratoria could be significant in the short term for consumer facing industries. Consumers as a whole are nothing if not predictable, and a short-term absence of consequences for not paying mortgages that may already be on the cusp of foreclosure is almost certain to move mortgage payment dollars to other areas of spending.
So who wins and who loses? In retail, these consumers are much more likely to shop at mid range and discount retailers than the higher end (but don’t cry for JWN and TIF – their consumers are just fine, thankyouverymuch). Target (TGT) and Kohl’s (KSS) both sell desirable merchandise with good discounts and are trading at decent valuations. Overhanging mortgage debt or not, don’t discount the allure of Apple’s (AAPL) latest gadgets – virtually the only MUST HAVE items for Holiday (and don’t forget that Target sells these too).
Oddly, many folks who don’t pay their mortgage continue to pay their unsecured credit cards and will have more money to do so. This could be a bonus for Capital One (COF) and Discover (DFS).
Home Depot and Lowes should be among the marginal losers of this trend as the roughly $5300 needed to make a foreclosed home habitable will be slower to trickle to their direction.
Finally I’ve heard market chatter that the homebuilders (LEN, KBH, PHM) should do better as foreclosures are held off the market. I’d be VERY cautious about playing this trend. We already have an almost record 11.6 months of homes on the market, and removing new bank foreclosures from the stream isn’t like to create much demand for additional new homes in the short run.
Ho ho ho.
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team