by Calculated Risk on 12/08/2008 06:19:00 PM

In a research note titled "Foreclosure Update: over 8 million foreclosures expected" (no link, hat tip Frank) updated last week, Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages.

The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession. Note: the Comptroller of the Currency John C. Dugan noted this morning that re-defaults rates appear to be well in excess of 50% for recent mods, much higher than the hoped for 40%.

What really stood out in the forecast was the shift from mostly subprime foreclosures to non-subprime (Alt-A and Prime) foreclosures. This fits with some of the housing themes we've been discussing - that foreclosures will now be moving up the price chain.

Click on graph for larger image in a new window.

This graph shows the Credit Suisse estimate of loans in Foreclosure and REO as of Sept 2008 (in blue) and their base forecast for new foreclosures by the end of 2012, for both subprime and other mortgages (Alt-A and Prime).

Credit Suisse believes 2008 will be the peak year for subprime foreclosures, although subprime foreclosures will remain elevated over the next few years. However they are forecasting a significant increase in foreclosures over the next couple of year for non-subprime loans.

When I spoke at the Inman Real Estate conference in July 2008, I suggested that real estate agents should expect increasing foreclosures in high end areas. As I've previously mentioned, my comments were greeted with incredulity. I wonder if views have changed? We're all subprime now!