Housing outlook, with little assistance

It seems as if there will be little or no outside help with the national housing crisis, at least coming from our government. That has been clear for some time now, but even the most recent plan to modify HARP (google search for the full explanation) may only benefit possibly 10% of those in some sort of financial difficulty due to housing issues. Zillow has an eligibility list so you can see how your situation stacks up with the rules. And lenders will have to participate.

The primary matter we all are having trouble accepting is that there is a large ‘zombie’ inventory of ‘underwater’ homes  (sorry to use the descriptive words you see everyday in the media). Translated; there is a large inventory of homes in the US that are sitting in various stages of disrepair and/or lack of attention. They might be vacant or they might be occupied, but millions of homes currently have more debt against them than they are worth – thus the underwater reference – which gives them a zombie like status. Popularly known as walking dead, this inventory of homes is not getting the care that a homeowner usually expends on their home, and in fact may be vacant and stripped of appliances, fixtures, copper tubing and wiring. Yes, this is a huge problem in other states and no as much here in the Santa Fe market area, but we are affected due to our addiction to relocations from other states. And we do have plenty of underwater homes here, just not that many foreclosures. At a recent seminar with a real estate sector national expert speaking about housing, his program was entitled “Home is Where the Heartbreak Is” in reference to the millions of homes underwater or facing inevitable foreclosure now. The high side guesstimate, based on numerous economists and housing experts, is somewhere between 20 to 50 % of all homes that have mortgages of record against them.

There have been several opportunities for housing to lead the way forward to economic health, but it is just not going to happen. It might take some actual write-downs of principal on millions of home mortgages to get owners to stay in their home and stay current with their payments. They would have incentive to do so if they could understand their debt is equal to or less than the value. But that seems too much like a bailout for homeowners, which is not a popular action at a time when people are losing jobs and finding it difficult to shelter and feed their families. Some of the milder solutions include rewriting the loans to move the past due amounts to the end of the term (nothing free, just delayed and shuffled); lowering the interest rate (and therefore the monthly payment; and other creative and desperate measures to keep people in their homes. Lenders DO NOT want to own those homes, by the way. They never make money when they own a home through the legal process of foreclosure and later sell it. You would think lenders would recognize a huge incentive to salvage workable solutions with those past due borrowers, and also those still paying on their mortgage, even though underwater. Every one of those homes is in jeopardy of someday becoming another foreclosure for that lender – another chance for them to lose more money.

We know why lenders are not aggressively forcing homeowners into foreclosure; why they are slowing the process and taking their time in dealing with the plethora of bad loans on their books. There are actually several reasons, but foremost they cannot afford to take those losses on their financial statements  all at once. They plan to spread them over a longer period. But that period might be another 10 years. 10 YEARS! At the current pace of legal action taken by some lenders against their past due borrowers, it may take that long for them to deal with those loans and borrowers, eventually coming to some sort of resolution. That could be a restructure of some of the loans and it will also certainly include more foreclosures.  For every home that is underwater and yet to arrive at a solution through foreclosure and resale or a restructure with the borrowers compliance and ongoing payments, each one is a drag on the market and a hindrance to a faster and better economic(housing) recovery. As long as the future of those homes remains in limbo – what the pundits call ‘shadow inventory’ – the recovery and health of the housing market is delayed for a later date.

And we all get to deal with the consequences. For example, everyone thinks and hopes that their home might start growing in value again in the next year or three. Dealing with the shadow inventory will prevent that. Everyone is hoping their home will stop going down in value, even if they are not trying to sell right now. They want stability and eventual growth. As long as a steady stream of new foreclosures continues to enter the market capturing buyers by being priced below owner-occupied homes,  appreciation of value is nearly impossible.

What is the upside? You need somewhere to live so pick a place you will enjoy coming home to. If you are underwater, figure out if you want to keep making payments or if you need to resort to more drastic action to survive financially.Get objective advice about it and learn all of the issues of dealing with a lender on an underwater home. You are welcome to contact me to discuss what might be reasonable options for you, given your situation. With all that inventory of homes for sale and new foreclosures coming on the market, maybe now is the time for you to look at buying something. Interest rates are fantastic and you can get a very nice home for much less than the same home would have cost you 5 years ago. And please drop the worry that it won’t go up in value in the near future. If you are looking for an investment or something that will “pay off like a slot machine”, a house is not going to do that for you. Take the tax deduction of the interest and make it cozy and warm. Make it special for you and yours.

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