Foreclosure - Gate
Posted Oct 26, 2010
I copied this article from Jeff Baxter's Real Estate Report. Jeff is an outstanding loan officer with Prosperity Mortgage and can be reached by calling 302-537-5076
Just what the housing market needed, another crisis to deal with. We have already dealt with so many aspects of the housing crisis, from tighter credit to falling prices and foreclosures, it does not seem fair to pile another challenge into the equation. But it is what it is. It should not be surprising that, with so many foreclosures clogging the system, financial institutions and their vendors took shortcuts. No different than what happened during the real estate boom. The question is–how will this new challenge affect the housing market and the economy? First, we should make a few points clear. Those who don’t make their payments will eventually have to leave their homes, whether it is sooner or later. The bottom line will be the same. Second, even if foreclosure sales are delayed, don’t expect banks to flood the markets when the spigots open up again. Banks have been carefully regulating how much inventory reaches the markets and it would make sense that they will continue to do so.
The best case scenario is that some foreclosure sales are delayed for a few weeks. Not all banks have declared freezes and others have indicated that their paperwork and procedural reviews will not take long. The worst case scenario calls for longer delays due to systemic issues and actions by government agencies and even private lawsuits. One thing is certain. Even a short hiatus will negatively affect real estate sales because REO sales are accounting for approximately 1/3 of total sales right now. And weaker real estate sales will slow the economy even further. This means that the Federal Reserve Board is more likely to take positive action to help the economy in November. It may even factor into the results of the elections in some localities. We don’t need the economy to be slower right now because employment gains will only come from economic growth. The effect of foreclosures will make the Holiday retail sales even more important with regard to economic growth. The markets have already factored in slower growth and action by the Fed. Therefore, November could be a very interesting month as we start out with the employment report and preliminary growth estimates for the third quarter and end with reports on how the Holiday retail sales have kicked off during Thanksgiving weekend. By then we should also know "best or worst case" the foreclosure crisis turned out to be.
Just what the housing market needed, another crisis to deal with. We have already dealt with so many aspects of the housing crisis, from tighter credit to falling prices and foreclosures, it does not seem fair to pile another challenge into the equation. But it is what it is. It should not be surprising that, with so many foreclosures clogging the system, financial institutions and their vendors took shortcuts. No different than what happened during the real estate boom. The question is–how will this new challenge affect the housing market and the economy? First, we should make a few points clear. Those who don’t make their payments will eventually have to leave their homes, whether it is sooner or later. The bottom line will be the same. Second, even if foreclosure sales are delayed, don’t expect banks to flood the markets when the spigots open up again. Banks have been carefully regulating how much inventory reaches the markets and it would make sense that they will continue to do so.
The best case scenario is that some foreclosure sales are delayed for a few weeks. Not all banks have declared freezes and others have indicated that their paperwork and procedural reviews will not take long. The worst case scenario calls for longer delays due to systemic issues and actions by government agencies and even private lawsuits. One thing is certain. Even a short hiatus will negatively affect real estate sales because REO sales are accounting for approximately 1/3 of total sales right now. And weaker real estate sales will slow the economy even further. This means that the Federal Reserve Board is more likely to take positive action to help the economy in November. It may even factor into the results of the elections in some localities. We don’t need the economy to be slower right now because employment gains will only come from economic growth. The effect of foreclosures will make the Holiday retail sales even more important with regard to economic growth. The markets have already factored in slower growth and action by the Fed. Therefore, November could be a very interesting month as we start out with the employment report and preliminary growth estimates for the third quarter and end with reports on how the Holiday retail sales have kicked off during Thanksgiving weekend. By then we should also know "best or worst case" the foreclosure crisis turned out to be.
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