The number of mortgage delinquencies rose to a 20-year high in Q3 as borrowers increasingly found it difficult to make payments within the 30-day grace period, the Mortgage Bankers Association announced Thursday.

The percent of home loans with payments more than 30 days late rose to seasonally-adjusted 5.59%, the MBA announced -- the highest level since 1986. The group's survey began in 1972.

Telling stat

The delinquency statistic suggests that the housing correction "is far from over," according to economist Steve Affinito.

"It's not even the beginning of the end," Affinito told BloggingStocks on Thursday. "Generally during a housing slump, what you see first is a rise in unsold homes, and then a rise in delinquencies, mostly from homeowners who did not sell or could not refinance."

Depending on the survey, the supply of unsold homes in the United States totals about 9-10 months, based on typical selling rates -- a figure well above the 4-5 month supply norm, Affinito said. "In some regions of the country, the unsold supply is considerably higher," he added.

Subprime bailout

Further, Affinito said absent the Bush administration's proposed subprime bailout, the pool of unsold homes would swell to levels not seen in more than 50 years.

"Without the bailout, many of those subprime loans will go into foreclosure, and that could add another 2-4 months supply to the market," Affinito said. "Imagine a housing market that has a 12-month or 14-month supply of unsold homes? The impact on the economy would be major."

While recognizing the need for more-rigorous lending requirements and closer scrutiny of the home appraisal process, Affinito argued that "some public/private package must be implemented" to both help keep homeowners in their homes and protect the U.S. economy from another wave of mortgage and related asset defaults.

"From what I've read so far, the Bush administration's plan represents a good first step. It needs to be reworked so that the majority of the benefits protect owner-occupied homes, not investors who decided to buy 10 Las Vegas condos leveraged against their own home, with no cash-down payment," Affinito said. "The plan will probably benefit a few ridiculous loan examples like that, but given the consequences for the economy, it's best that Congress and the administration pass some package."

Companion sectors

Affinito said that the MBA delinquency numbers point to continued weakness in housing's companion sectors -- home construction, renovators, home furnishings, appliances, and suppliers. However, the companion sectors will experience recovery first, before housing sales, as builders shift to other work as it becomes available, and as renovators/furnishers emphasize work on existing homes. "The home renovation market can't totally compensate for the housing sales slump, but it will provide some economic activity and jobs."

When will the broader housing sector recovery start? In Affinito's interpretation, not before early 2009.

"Next year, 2008, is obviously going to be a tough one for real estate sales and prices. If the U.S. economy continues to grow, and assuming the subprime bailout and excess home inventory starts to work itself off, it's possible we could see signs of a rebound by spring 2009," Affinito said. "But that assumes that people are dropping their prices and their homes are being bought. If not, 2009 is likely to be another sluggish one for the housing sector."