"Poverty Effect": what do latest grim home foreclosure figures do to retail sales?

According to the Wall Street Journal’s December 2 article, Trans Union predictions, TransUnion LLC analyzed about 27,000,000 consumer records in its database and predicted that 7.17% of consumers will have mortgages that are 60 days or more past due in the fourth quarter of 2009 – the highest level since TransUnion started tracking these statistics in 1992. (By contrast, TransUnion expects a delinquency rate of 4.67% at the end of 2008.) More adjustable rate loans are due to reset from 2009 through 2011.

Locally, Reuters reported that the volume of Los Angeles County home foreclosure auctions rose again in November (to 3,685, up 51% year over year and up 54% from October). This happened despite the implementation of a new California state law passed last summer which requires lenders to contact homeowners to explore foreclosure avoidance options during a 30 day waiting period, according to RE research firm PropertyShark.com. Click here to read the Reuters article.

Even Bernanke is worried. He’s been quoted (in Forbes, among others) as saying that the U.S. foreclosure rate remains “too high,” creating “substantial social costs” as the subprime mortgage mess and ensuing financial crisis wreaks havoc on the economy. The Fed chief said "more needs to be done" to avoid further “unnecessary” bank repossessions – a departure from his earlier position opposing a bill that would allow bankruptcy judges to modify mortgages to save homes.

It’s hard to tell yet what the “poverty effect” will actually do to retail sales this year. Bloomberg focuses on the report that November retail sales reflect the worst monthly drop in four decades in its December 4 update; but CNN Money says the drop was not as bad as expected here. Most reports indicate the deep promotional cuts made by retailers are generating some traffic and sales; the question seems open as to how profitable these tactics will be.

Then the next question for commercial real estate will be: what’s the effect on retail stores, their leases and their landlords? And, in turn, their lenders? Your thoughts?