Foreclosures seen to be flooding the market in the near future...

Here's an excerpt from an article written by a sharp guy that negotiates short sales and invests in real estate, Bob LaChance:

Despite some recently positive housing reports, the housing market is facing continued distress. Of major concern is a recent report from S&P that puts foreclosure “shadow inventory” at a minimum 3 year supply. (Delinquent loans and REO properties that have not yet reached the market were considered). Amherst securities estimated the number of “shadow inventory” properties to be as high as 7 million.

Due to lender and court delays to in processing foreclosures, political pressure, and the stressed  and inefficient loan modification and short sale departments at most lenders, foreclosure inventory has been slow to hit the market. Many borrowers who have not paid their mortgage for months have simply not received a foreclosure notice. Then there are stories across the web of homeowners who have been in the loan modification process for 10-18 months. Should they not qualify, their next steps will be short sale, Deed-In-Lieu, or foreclosure.

I expect to see a shift in the number of homeowners that are denied a loan modification. This shift will mean that servicers will dedicate more effort to short sales as a means of loan liquidation. There are over $400 billion just in delinquent loans that will need to be removed from the banks books at some point. This does not include the billions in property that banks already have foreclosed on.

The amount of foreclosure inventory in the pipeline and the wildly unsuccessful HAMP program will most likely result in a continued reduction in housing prices over the next year or more.

According to S&P, only $14-15 billion in loans or REO property liquidate monthly. To eat through the coming REO inventory at that rate, the market should stay flush with short sale and REO property sales for a minimum of 3 years.

CNN Money reports 25% home price decline ahead for our area!!

Take a look at this eye-opening post on our Winston Trails blog...If you're a home owner, you NEED to read it. Just click right here

Thanks for reading our blog,

Steve

Home prices and unemployment

Location, location,location....this used to be the three most important words for real estate value...now it may be jobs, jobs, jobs.

IMHO, the governments compiling and releasing, and television news' subsequent spinning of the (un)employment figures is as slanted as the National Association of Realtors economists recommendations in 2005 that it was a good time to buy.

It makes basic, undeniable sense that if people do not have jobs, they can't:
a) buy a house
b) pay for the mortgage on the house they own

But, it's not the "unemployed" figure that is important (or accurate) but the "no longer looking for a job",  "under-employed" AND "employed but not making any money" figure is what the bigger problem is today!

An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December. Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent...about 1.7 million Americans opted out of the workforce from July through December, a Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years. So eliminating almost 2 million unemployed from the reported figure was pivotal in keeping the reported rate down.

The "official" jobless rate when including the so-called underemployed -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent in December. Also, NOT included in that 17.3% figure are the "officially employed" (business owners, self employed, commissioned sale people) but making no money, or much, much less money than before. I personally know many General Contractors, self employed construction industry tradesman, mortgage brokers, real estate agents, and many, many business owners or independent sales professionals whose incomes have declined to zero or may even be coming out of pocket/savings to keep their businesses open...these people are not counted in ANY govt. reported employment figure.

The flip side of the jobs problem is the foreclosure problem...the foreclosure problem will lag the jobs issue by a year or more...Think of it this way: people lose their jobs or suffer a reduction in income, they don't immediately stop making mortgage payments-they try to keep up as long as they can...then if they finally decide that they can no longer keep up with the mtg, the banks are taking a long, long time to foreclose (which is the subject of another post to come). So...contrary to the rosy picture being painted, we have an uphill climb in regards to home values.

But...as a result of the current govt. interventions in the housing market (tax credits, interest rates), the next 4 months or so should present a good opportunity to get a home sold.

Another foreclosure wave?

The next wave of foreclosures are just on the horizon…and that wave is BIG! According to Dean Baker, the co-director for the Center for Economic and Policy Research in Washington: “There’s a huge supply out there. The foreclosure process can take a long time. When it comes to (the housing recovery), we’re not home yet.

Some studies estimate that there are about 7 MILLION properties destined to go into foreclosure. These homes largely represent loans that are delinquent but have not yet become foreclosure sales.
The “time lag” between when a borrower stops making payments and the home is actually re-sold by the lender can be up to 2 years or more, for varying reasons:

• Self or Govt. imposed moratoriums…this happend last year around the holidays, and I expect that it will happen again this year
• Understaffed, undertrained lenders
• Loan modification being attempted prior to foreclosure
• Internal “asset protection” strategies…bank don’t have to write down the value of the home (asset) as long as it is on the books

So, although the local housing numbers look like they are improving...be careful, both if you are a seller or buyer of any real estate here in Palm Beach County, Florida. The expanded and extended tax credit is good...and bad. It is giving people a false (and temporary) view of the market.

Buyers need to be well educated about WHY they are buying, WHAT they are buying and what their goals with the purchase is.

Sellers need to also remember WHY they are selling and be aware that this apparent improvement in the market may not last.

Call or email me if you'd like to discuss this further from any viewpoint. Thanks for your time in reading our posts.

Steve Jackson