Monday, May 25, 2009

Is this the eye of the storm?


From Barron's (this was written by a real estate broker)

A lot of people think that we've seen the worst of the housing crisis. They're talking about green shoots and glimmers of hope, when they should be back in the storm shelter, preparing for a flood of inventory that will overwhelm the markets and produce another round of falling prices

For the past few months there has been a semi-moratorium on foreclosures. Most institutions with delinquent mortgages didn't foreclose. The signs that blanket many neighborhoods have been posted by a fraction of the lenders. Now the rest of the banks are rushing to get their properties on the market.

As a Florida real-estate broker who works with bank asset managers to dispose of foreclosed properties, I get a good view of this market. From December 2008 through mid-March 2009, the number of asset managers calling to discuss REO (real estate owned) properties on their client banks' books dropped by more than 80% from the level at which it previously had been running. In the past two months, however, asset managers have been busy, with most interested in how many properties we could handle at once.

Law firms for banks are once again lining up to file foreclosures and to process evictions. The asset managers we work with have warned us to expect a flood of properties, beginning in early June. This will hit as the number of potential buyers continues to dwindle. Builders, traditional sellers and investors who entered too early are already loaded with REO properties...

There's no light at the end of the tunnel yet. We're still supporting builders through misguided programs that are only adding to the inventory woes. California decided to offer a $10,000 credit to buyers of new homes, on top of the $8,000 federal credit. But California made the $10,000 available only for new homes purchased directly from builders. That shows the power of the builders' lobby, but it only adds to California's housing-industry problem. It encourages builders to construct dwellings we don't need, and it penalizes anyone else trying to sell a home.

Housing inventory soon will flood a market in which more than 500,000 homes are being built each year, even though the annual sales pace for new homes is closer to 300,000. We must also deal with a system clogged with impossible short sales, a surge of second and vacation homes being dumped, and third-wave flippers realizing that they entered the market too soon.

Unemployment presents a two-pronged problem. If homeowners lose their jobs, they have difficulty meeting mortgage payments. And a high jobless rate forces more people to put their homes on the market.

During the housing bubble, many second homes were purchased with the mythical equity from primary residences. These second homes are coming onto the market at an alarming rate, as many middle- and upper-class sellers need to raise cash. In some very exclusive private communities in Florida, where home prices are in the seven figures, more than 50% of the homes are on the market.

Unfortunately, there are no signs of recovery, despite the hype and the twisting of numbers in many media reports. The end of the unofficial moratorium on foreclosures, combined with rising unemployment, signals that the back half of this housing hurricane is only just beginning.

7 comments:

Carl said...

on a positive note, I shot an 80 at Los Serranos North with a 37 on the back.

We played in 3.5 hours on Saturday, teeing off at 12:30 and finishing around 4.

OSA said...

instead of foreclosing on homeowners, why don't banks just reduce principal for current homeowners? do they not get the same result from both? lost money is lost money? it makes no sense. Why can't anyone see this?

Roger Roberts said...

Why don't I call Nissan and tell them I can't make the monthly payment on my Maxima anymore. I want them to reduce the payment for me. Why don't I call the power company and tell them that I can't make the monthly payment on my bill and they have to reduce it. Why don't I go to Stater Brothers and tell them I can't pay $140.00 for my groceries. I want to pay $40.00 for the same amount of groceries. Yeah, that sounds like a viable solution......

Rosalie said...

OSA-

I know a lot of family and friends that are losing homes but I still do not think their principal should be reduced. It's simply not fair, they got in way in over their head and now they need to pay the consequences. I have waited in the sidelines for 3 years now because I knew I could not afford some of the prices, so it would not be fair to me. Yes lost money is lost money, but now the banks can get buyers that can "realistically" afford their home. I agree with Roger!!

golfer_X said...

Nice round Carl! I dunno how you managed 3.5 hrs at LS on a weekend afternoon. That's awesome. I HATE slow play.

Carl said...

Holiday Weekend. I heard that Sunday was just as empty (didn't play), but Monday was busy.

I guess those who normally play LS had holiday commitments.

golfer_X said...

I played Hidden Valley this morning. It was pretty light out there. I've sure noticed a drop in people at the courses in the last year. On the plus side the green fees have come down at most of the courses. I still think they are too high but at least now I don't feel like they are raping me. It's more like a cheap reach around now....