Recession has replaced the 2004-06 bad underwriting and fraud as the principal driver of home foreclosures. This means that the foreclosure count will continue to rise even though the absolute number of foreclosures due to rate resets from initial teaser mortgage rates, abandonment of speculative properties and quick defaults on mortgages that were never affordable continue to decline. Foreclosures are a lagging indicator. Typically, the number of foreclosures keeps growing for at least a few months after employment begins to expand which is 5-8 months ahead. As a result, homebuilders will be competing with an excess of existing homes for sale through late 2010 or beyond. This will restrain starts for several years after homebuilders have cleared out their own surplus inventory.

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