I am a real estate agent. Yesterday, the Cherokee Tribune headline read “Year begins with 398 foreclosure notices” (more than last January). I did a little research and a little math-- that works out to 1 foreclosure notice for every 200 homes!
History shows us that real estate has lead the way out of every depression and recession we have had for the last 100 years. And friends, real estate is leading in the wrong direction!
What makes it worse is that we are no longer looking at foreclosures on loans that were risky to begin with, and more and more people are choosing to walk away!
I am finding that most people really don’t understand the terminology being used. I think most people understand ARMs, and LIBORs but how many know what “shadow inventory” is or what a “strategic foreclosure” means.
First let me explain what “shadow inventory” is: this is the number of homes that are already owned by banks, but not yet on the market, plus the number of homes that are at least 90 days in arrears (stats show that virtually all of these will end up in foreclosure or short sale), plus 95% of those 60 days in arrears plus 70% of those 30 days in arrears. What this means is that in the coming months, there could easily be another 7 million homes on the market. That’s easily a 3 year supply! The law of supply and demand says that when there is huge supply-prices go down.
I am sure most of you have that eyes glaze over look already. But I truly believe that we can’t change what we don’t understand.
Strategic foreclosure has been around in the business world for many years. It has now moved into the “home market”. A “Strategic foreclosure” is one in which the property owner has the ability to pay, but has decided to walk away.
Let’s say you owe $160,000 on your home. Let’s say values have dropped to the point that your home is now worth $105,000. You can live there and continue to make your payment or you can deposit your payment in savings, and live rent and mortgage free for a year or more until the bank does indeed foreclose. In my neighborhood there is a home that was foreclosed on in November of 2008. The former owners still live there. (This is the only case I know of that the bank has allowed the homeowner to stay so long, but banks do NOT want empty houses open to vandalism.) With a payment that was $1000 per month (I am estimating that very low) they could have saved $26,000. Now they can take that $26,000 and put it down on a similar house-(they will need special financing, but trust me, it can be had) and have a mortgage of $80,000! In the mean time, that foreclosure has driven the value of all the neighborhood homes to a new low.
I think everyone has heard of loan modifications and short sales. I have to be honest, between Private Mortgage Insurance, and government guarantees and insurance; I believe often banks make more money foreclosing rather than doing loan mods, or short sales. Of course every banker will argue with me on this and ask where my proof is. I don’t have a lot; I can only point to One West. Should my reader want to have his or her blood pressure sky rocket, please google “indimac one west FDIC”. To be fair…read the banks and FDIC’s answers.
I don’t have a fix for this problem. I will say that I am pushing my kids to buy, and if I had the money, I would be buying properties myself.
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