Realtor Coaching & Training: Massachusetts
1000's Of Bank 'Shadow Listings'
A vast “shadow inventory” of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”
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In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity – only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.”
“There is a real danger that there is much more (foreclosure) inventory than we are measuring,” said Celia Chen, director of housing economics at Moody’s Economy.com in Pennsylvania. “Eventually those homes will have to be dealt with. If they’re all put on the market, that will add more inventory to an already bloated market and drive down home prices even more.”
More than one-third locally
In the Bay Area, a Chronicle analysis of data from San Diego’s MDA DataQuick shows that more than one-third of foreclosures are in shadow territory – that is, they are not registering in county records as having been resold.
For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for.
Turnaround usually quick
Realtors say foreclosures generally go on the market a month or two after the bank takes title and then sell fairly quickly, often getting an accepted offer within a week or two of being listed and then closing escrow within 30 days. That means that foreclosures should register as being resold within three months.
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But taking the foreclosures in any given month or selection of months and looking at what happened three months later also reveals a big gap between what banks took back and what they resold.
Tom Kelly, a spokesman for banking giant Chase in Chicago, said the bank sells foreclosed homes in a timely fashion.
“We try not to be in the business of owning homes,” he said. “Our goal is to get them back on the market as quickly as possible. We want to maximize what we sell them for and yet do it quickly.”
Kelly was at a loss to explain the shadow inventory phenomenon other than the quantities involved.
“The inventory might be growing because there is just a lot of volume coming in. That would not surprise me,” he said.
Locally, the monthly number of foreclosures has decreased since peaking at 4,321 in August 2007. That has allowed foreclosure resales to start closing the gap.
Most observers say the recent fall-off in foreclosures came because California and many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished.
Only 65.5 percent resold
A second DataQuick study of all Bay Area homes repossessed by banks in the 18 months ending January 2009 tracked how many of those homes had resold by mid-March. It found that 65.5 percent had resold. Discovery Bay’s ForeclosureRadar.com compared its database of Bay Area foreclosures to MLS listings for the past 120 days and found that fewer than one-fifth of the foreclosures showed up as for-sale listings.
“Foreclosure numbers are artificially depressed,” said CEO Sean O’Toole. He puts California’s shadow inventory at about 100,000 homes.
So why aren’t banks selling off their foreclosures?
Observers say several factors are at work.
– The “pig in the python”: Digesting all those foreclosures takes awhile. It’s time-consuming to get a home vacant, clean and ready for sale. “The system is overwhelmed by the volume,” Sharga said. “In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month.”
– Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. “With banks in the stress they’re in, I don’t think they’re anxious to show losses in assets on their balance sheets,” O’Toole said.
– Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don’t fall as fast. “They want to be careful about not releasing them too quickly so they don’t drive prices down and hurt the values,” O’Toole said.
Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they’re negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above.
“The problem is that no one knows how extensive (the shadow inventory) is,” said Patrick Newport, U.S. economist with the Massachusetts research firm Global Insight. “It’s a wild card. If it’s a really big number, you’ll see prices drop a lot more and deeper problems for the financial system.”
Missing foreclosures
Only 65.5 percent of all Bay Area homes repossessed by banks in the 18 months ended January 2009 had been resold by mid-March. This study looked at the same homes over time, not an aggregate of all foreclosures.
| County | % foreclosures resold | % foreclosures unsold |
| Alameda | 58.6% | 41.4% |
| Contra Costa | 69.8% | 30.2% |
| Marin | 66.9% | 33.1% |
| Napa | 66.0% | 34.0% |
| San Francisco | 49.8% | 50.2% |
| San Mateo | 61.5% | 38.5% |
| Santa Clara | 62.0% | 38.0% |
| Solano | 67.5% | 32.5% |
| Sonoma | 75.3% | 24.7% |
| Bay Area | 65.5% | 34.5% |
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Property Tax Revolt.
Here is a great people helping…and money making tip for you….
When Julie and I sold real estate in Ohio, every spring we would send a letter to all of the homeowners in our community offering guidance how to have their property tax bill reassessed. It seemed to be common practice for the homes in our community to be over-taxed.
Its a fairly simple process. There is a form that the homeowner needs to complete (You can usually find this form online…go to your local tax auditors web site). Next, they will need a CMA. Thats it! You provide all of this to your community, your friends, family and past clients. In virtually every real estate market homes have depreciated creating a situation where homeowners are overpaying for their property tax.
Imagine the gratitude that homeowners will have when you help them save money!
Obviously, this is a fantastic way for you to provide a much needed financial boost to your real estate clients….and a powerful method to expand your real estate business.
Homeowners watching the value of their houses slowly ebb are storming tax offices from Ann Arbor, Mich., to Atlanta, demanding that county officials reassess their homes and lower their property taxes.
It is a question of fairness, says Gene Burleson of Atlanta, who stood in line April 1 to appeal his assessment. His house has lost 25 percent of its value since it was last assessed, he adds: “I’m just trying to insulate myself from coming tax increases.”
Property taxes have become a rallying point for disgruntled Americans because, unlike sales or income taxes, they can be challenged directly by individual citizens: Some 40 percent of assessment appeals are successful. Yet the movement threatens already stressed counties, putting the tax receipts that pays for schools and police at risk.
“The property tax is the only tax where [a citizen] can go in and eyeball the guy,” says Billy Cook, executive director of the Institute for Professionals in Taxation in Atlanta, noting that appeals often lead to small-claims-style hearings to press one’s case against the county’s tax valuation.
“Think of all the taxes in the U.S.: The taxpayer renders their returns and the government audits to make sure you do it right,” adds Cook. “The only tax where the taxpayer audits the government is the property tax.”
In many areas across the U.S., home values have dropped so rapidly that assessors have not been able to keep up. Even as their home values depreciate, homeowners are likely to see increases in their tax rates, because appraisals sometimes have been done years earlier.
“You have a lot of things coming together right now” resulting in the rush on tax assessors’ offices, says Joan Youngman of the Lincoln Institute of Land Policy in Cambridge, Mass. “You have homeowners knowing that the value has dropped. You have rapid shifts in the market. And on top of that, it’s harder for assessors. … It’s more likely that there’ll be inaccuracies now than when everything is stable.”
Tax Appeals From Georgia to Nevada
Assessment appeals are up in cities nationwide:
In metro Atlanta, more than 50,000 people — a 10-fold increase over last year — filed appeals ahead of the April 1 tax deadline. The result was long lines of grumbling taxpayers. Little wonder: A survey released Tuesday said average home prices in Atlanta are down to 1996 levels.
Some assessors say the trend is being driven more by dramatic headlines than by real shifts in property values.
“I think there’s a genuine concern for what property values have done, but I think there’s also a reaction to national headlines that are reflective of markets in far worse condition than ours,” says Phil Hogsed, chief assessor of Georgia’s Cobb County, north of Atlanta.
Still, the onslaught highlights the delicate balance of property-tax assessments. While the tax assessor’s job is technically nonpolitical — they assess value, while politicians set the tax rate based on that value for their revenue needs — there’s constant pressure to keep valuations high to maximize revenue.
Assessments can be political, as a recent Supreme Court case in Nevada showed. The court ruled that dramatic differences in assessments in different counties bordering Lake Tahoe suggested that more than just the real value of the homes and properties was taken into account.
“Politicians … put pressure on the local assessor to keep that value as high as possible so they don’t have to raise the tax rate,” says Cook of the Institute for Professionals in Taxation.
Given what’s happening now, however, elected officials will be under increasing pressure to debate publicly the prospect of higher taxes to fund government, Cook says. Many states’ expenditures were growing by 10 percent a year before the recession began.
“If house prices are down 30 percent in any given market, then the property tax rate has got to go up … or the government’s got to shrink by 30 percent something’s got to give,” says John Baen, a real estate expert at the University of North Texas in Denton. “Any taxing authority taxing real estate is always [eager] to increase values based on a few select sales of some cherry-picked, high-priced properties … yet on the way down they’re slow to react.”
Why Appeal Taxes? ‘I Just Don’t Believe the Assessment’
Atlanta IT specialist Jacquay Waller stood in line this week at the Fulton County government complex. He bought his house in the Sandtown neighborhood for $350,000 two years ago. The county assessed it at $380,000. If he were to sell it today, Waller doesn’t think he’d get more than $250,000, based on comparable sales in the neighborhood.
“I just don’t believe the assessment,” says Waller. “I just don’t want to pay more in taxes on an amount that I could never sell it for.”
In good times, few people worried about their assessments and even saw high valuations as a good omen for their properties. Now, especially for those homeowners who bought at the height of the market, those values are a burden.
“People who bought in recent times at the highest prices are the ones whose values have fallen tremendously,” says Tom Richardson, a tax attorney in Ann Arbor, Mich., which has seen a record number of tax appeals this year. “It’s the people who have taken the worst hit who are now at risk.
Along with looming tax increases, those shaky valuations are forcing a secondary standoff between government and the people, says Sharron Angle, a former Nevada assemblywoman: “When people don’t feel like they can spend money because the government is going to tax them, and [homeowners] need money to forestall whatever attack the government is going to make on their pocketbook, it pits the government against the people and stagnates the economy.”
The National Taxpayer Union, an antitax lobbying group in Washington, claims that as many as 60 percent of homes in the U.S. are overassessed. For the 722,000 homes in New Jersey that are potentially overassessed, average savings on the tax bill could equal nearly $2,000, according to the website EasyTaxFix.com.
“It’s a muddled situation out there with what is a house’s true value right now,” says Verenda Smith, a spokeswoman for the Federation of Tax Administrators in Washington. “Everything is just an educated guess.”
“The standard wisdom is that homeowners win on the upside and lose on the downside and over time that evens out,” she says. “But they don’t want to hear that it evens out when they’re worried about their job and their house value.” Source: ABC News.
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Great article from ManagingREO.com. Thanks to Harris Real Estate University Student Ted Shoop for sending this to me.
Here is a great article about foreclosures and Loan Modifications. Read this article…then watch the FREE Agent Loan Mod Secrets Video.
Servicers are seeing increased cases where borrowers are trying to stall or stop foreclosures by filing “right to rescind” notices as violations of the Truth in Lending Act.
Translation: Borrowers are fighting foreclosures or at least making the process very difficult for their lenders. There is a surge of court cases where the Judge asked for the lender to produce mortgage documents as part of a foreclosure. Because the loans were packaged, sold…resold often the lenders can’t produce the required documentation….
Panelists on a mortgage litigation panel at the MBA’s National Servicing Conference in Tampa, Fla., said that debtors attorneys are claiming that the borrowers they represent were given inadequate documents at the time of closing and did not understand the loan, which judges are starting to honor.
Imagine the leverage this can create in the process of negotiating a Loan Modification…..
Terry Hutchens, president of the law firm of Hutchens, Senter & Britton, based in Fayetteville, N.C., said it’s worth it for servicers to work with the borrower and negotiate a settlement or loan modification with the borrower rather than take the case through expensive litigation, he said. “The atmosphere has changed. We’re not so vulnerable that we are rolling over in every case, but we have to consider doing things differently than we have in the past,” said Mr. Hutchens. “It can cost as much as $200,000 if you have to take some of these cases to trial.”
Shaun Ramey, a partner with Sirote & Permutt PC in Birmingham, Ala., said servicers must decide how to handle these new cases. Cities, states and counties are putting giant roadblocks up to fight foreclosures, he said. “There are new claims and new defenses. Public nuisance lawsuits are coming up more and more because foreclosures are driving up the cost of mounting REO properties sitting around and the cost it takes to maintain them,” Mr. Ramey told conference attendees.
In some states (Like Ohio) its common for someone to stay in their home for YEARS making no house payment…
“In Ohio and Florida, we’re seeing more foreclosure stops. New ways of stalling foreclosures. The press, society, judges, lawyers, everyone is talking about foreclosures. There are foreclosure boot camps, websites, blogs. Debtors attorneys want to prolong the process and keep the person in the house,” said Mr. Ramey.
Federal action is being taken under the Fair Housing Act by municipalities like the city of Baltimore regarding wrongful foreclosures. It was said that claims of reverse redlining are being brought against lenders, and borrowers are bringing suitability actions. Servicers are re-underwriting these loans in order to show suitability defense and action on an individual loan basis. “If the judges feel that something isn’t right, they will stop the foreclosure,” he added.
“You must prepare for litigation — defense action and how to represent yourself. Were you acting through MERS? Or will you name yourself? Providence, Buffalo, Cleveland, the cities are getting into the business of regulating foreclosures. There will be lawsuits,” he said.
Various attorneys general are claiming that the loan wasn’t suitable for the borrower and the loan didn’t meet their needs, which is why the borrower is in foreclosure now. Often, these risky loans had 100% financing and were subprime ARMs. While there is not a statute or violation that deals with this, these claims are being brought under the Deceptive Trade Practices Act.
Talk about LEVERAGE….Lenders have yet another reason to accept Short Sales and Loan Modifications…..
In Massachusetts, the highest court recently held that a lender had violated this act and ruled to stop the foreclosures. The lender had to give the attorney general 90 days notice to determine if the foreclosure is unsuitable. “Even though it didn’t violate a statute, they are saying the lender should have known. This is a serious matter. I think we’ll see this spread through the states,” Mr. Ramey said.
According to Mr. Hutchens, lender attorneys are on the side of good but getting a bad rap from the courts. “We have a client, a reputable lender. The judge told me he didn’t believe anything my client said. He believes everything he sees and reads on TV. We are dealing with brainwashed judiciary.”
While working on a case in North Carolina, Mr. Hutchens said the debtor took the stand in court and said she had tried to contact her servicer 200 times by phone. “She said she got lost in the shuffle of calls and never had any contact with her servicer. The judge said to the servicer lawyer, ‘What do you have to say about this?’ The lawyer said, ‘The left hand doesn’t know what the right hand is doing in this business.’ So the judge ruled no foreclosure.”
Mr. Hutchens said he hopes the mortgage industry can communicate better with lawmakers to have candid conversations and address these missteps. “We are not being treated fairly. We are not given a chance.”
Everyone shed a tear…..
As the courts are consumed with the topic of foreclosure stops and anti-foreclosure legislation, lenders and asset managers are still left dealing with the tremendous amount of vacant properties across the country.
Speakers at this panel also mentioned what other panelists said earlier in the day. Lenders are more open to the idea of leasing out real estate owned assets as another tool to support the industry. The new way of thinking is that these properties can be rented out and sold as REO, especially as valuations continue to decline on a national basis. It’s good for an objective third party to look at high end batches of homes, regular and aging inventory to determine which marketing strategy is best. They said staging and rental agreements are being considered more today through neighborhood outlooks.
Foreclosure moratoriums add costs to timeline management of maintaining the property. It can mean writing down loans further and pressure on property values. When the property is re-sold it helps the community and the neighborhood. Relative to where buyers are located, many do not have access to financing these days. The financing has to get kicked back on, the panelists said, and the industry needs to get back to good old-fashioned underwriting.
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Harris Real Estate University.
If there was any doubt that Mortgage Loan Mods are the people helping, money making opportunity in this market…..read this article for the Orange County Register:
JPMorgan Chase and Citigroup, two of the largest banks in the U.S., are stopping foreclosures for the next few weeks as the Obama administration forms a national loan modification plan. And the Office of Thrift Supervision on Wednesday urged more than 800 savings and loans to do the same.
Citi said in a release today it will not foreclosure on first mortgages on owner-occupied homes if it owns the loan or on similar loans in which investors are in agreement. The bank will continue until Obama announces a loan mod plan or March 12, whichever is sooner.
And the Associated Press reports JPMorgan CEO Jamie Dimon said his company plans to halt new foreclosures for owner-occupied home loans through March 6. Here’s more from AP:
Dimon made the pledge in a letter to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who released it on Friday.
“This moratorium replicates the 90-day foreclosure freeze we announced on Oct. 31,” Dimon wrote. “We believe three weeks is adequate time for the Treasury to announce – and for us to implement – a new plan.”
Back on Oct. 31, Chase, as JPMorgan’s bank is known, said it would not put additional loans into foreclosure while it expands its loan modification efforts — one part of that was to include customers of Washington Mutual and EMC Mortgage. The program applied to owner-occupied homes when either Chase owns the loan or has investor approval to do modifications.
Then on Jan. 16, Chase said it expanded the program to include $1.1 trillion in investor owned mortgages. Chase said:
Based on the company’s review of investor agreements and its experience with investors and trustees to date, Chase believes it can legally modify the vast majority of mortgages owned by investors consistent with the relevant investor agreements and the best interests of investors, and intends to make modifications where appropriate. Chase will continue to seek investor approval in the small number of situations where investor agreements contain specific terms that may limit modification actions Chase can take.
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There is little question that there will be a new national government backed Loan Mod programs coming our way. Clearly, in 2009 and beyond knowing how to offer loan mods to your real estate clients is going to be a required skill.
Here is the article from Reuters:
WASHINGTON (Reuters) – The Federal Reserve on Tuesday took a step toward easing mortgage foreclosures threatening millions of Americans, announcing that it would write down troubled mortgages to keep people in their homes.
Fed Chairman Ben Bernanke said the initiative would specifically include $74 billion of assets held in connection with the bailout last year of Bear Stearns and American International Group.
“The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank,” he said in a letter to Rep. Barney Frank, chairman of the House of Representatives financial services committee.
The Fed was instructed by the law last year that authorized a $700 billion bank bailout with public money that it must do what it can to minimize foreclosures.
The Bear Stearns and AIG rescues were done outside of this emergency measure, and President Barack Obama has said that part of the second $350 billion tranche of the money, that was released to him by Congress earlier this month, will be used to stem the tide of foreclosures.
Private economists estimate that millions of Americans are at risk of losing their homes after the collapse of the U.S. housing market savaged house prices and forced up unemployment as the economy slid into recession at the end of 2007.
Frank, a Massachusetts Democrat, has been among U.S. lawmakers pressing the Fed and the government to do more to prevent mortgage foreclosures and he said the decision by the Fed was a “major breakthrough.”
“We just had very good news from Mr. Bernanke from the Federal Reserve, who has just announced a very significant increase in Federal Reserve policies to reduce foreclosures,” Frank told MSNBC television in an interview.
MODIFYING RISKY LOANS
Research firm RealtyTrac says 850,000 foreclosed homes are already on the market and expects this number to rise by another 1 million homes in 2009, with 2 million more homes entering the foreclosure process during the same period.
Senate Banking Committee Chairman Christopher Dodd separately said that the Fed’s decision was an important step.
“I am delighted to hear the news. I don’t know details of it yet. I am very encouraged by that,” he told reporters.
“We have been trying to get, as you know, for some time in the previous administration (of President George W. Bush) for them to take steps on foreclosure mitigation.
“They refused to do so for whatever reason. I am very pleased that the Fed is stepping up,” Dodd said.
In a bold effort to unscramble complex mortgage-backed securities at the heart of a financial crisis sparked by the housing market decline, the Fed said it would encourage mortgage servicers to modify loans at risk of default.
It will also “assist” the loan servicer in making modifications, according to a document made public by the Fed on Tuesday, entitled “Homeownership Preservation Policy for Residential Mortgage Assets.”
The Fed has said it will purchase up to $500 billion of mortgage-backed securities by the end of June to make home loans more affordable to boost demand for houses.
Mortgage-backed securities pool many different mortgages, which makes them extremely tricky to separate in a loan modification designed to prevent foreclosure.
The Fed said it would consider reducing the interest rate paid on mortgages at risk of default, extending the term of the loan, and accepting “a deferral or reduction of the outstanding principal balance of the loan,” according to the Fed document.
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Dear Tim and Julie
Thanks to the coaching calls and the Agent REO Secrets Coaching class I am still working hard!
I have a seller who wanted to wait until January to put her property on the market, Harris Real Estate University gave me the push to get it listed now and not to wait until the holidays were over.
Good thing because their is already alot of interest in the home by buyers. It is motivating me to try to get 2 more listings that the sellers are also waiting until after the holidays! I hope it all works out and that December becomes my best money month!
Thanks,
Michelle Lussier
Prudential Prime Property
Michelle Lussier
Realtor , Reo Specialist
Thank You for you Referrals
Helping people buy or sell a home in Massachusetts,Rhode Island, and
Connecticut
–
Michelle Lussier REALTOR
Certified REO
Prudential Prime Properties
971 Providence Road, Whitinsville, MA 01588
508-612-5144 Direct * Office Fax * 508-234-0005
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Remember when owning a million dollar home was seen as the birthright of only movie stars and royalty?
Well, that all changed during the loosey-goosey credit years. It seemed like it was every Americans national duty to be in debt, have a huge mortgage and maxed out cards. At least that’s what millions of Americans were lead to believe. Everyone was ‘rich’…at least on paper. This paper wealth gave permission for people to embrace their post manufacturing based economy label…as a consumer. And , do American ever know how to consume.
Americans have an insatiable desire for homes. Its part of this American pathology to always want a better home…heck, owning a home is ‘The American Dream’…owning a $1,000,000 home just seems…somehow…dreamier.
So, Americans went on a buying spree. We felt rich, had access to easy credit..nothing was out of reach. It was all psychological. And during the recent boom years, Americans became reckless consumers, buying cars, houses, clothes and much more that they couldn’t really afford. The dream of a $1 million home, once so distant, became tantalizingly reachable. Afterall, that new leased BMW had to be housed in a new garage of the newest, must have community.
Drive through the post-boom housing markets across the US and one thing becomes clear. The party is over. Las Vegas was the prototypical housing boom story. New developments were announced early every week. People would stand in line to toss down their hard borrowed cash for a place in line for the right to ‘invest’. Luxury condo buildings are now nearly vacant. The gold-plated golf course laden communities with tree lined streets are now being sumplemented with endless “For Sale” signs…now those signs are all adorned with the ominous subtitle “Foreclosure, Bank Owned” or “Short Sale”. In Riverside California there are literally acres of ‘Master Planed Communities’ that have been left to decay.
Other asset prices are returning from orbit as well. In the credit induced, consumer drunk boom times what were once considered to be luxuries became mandatory house hold staples. In Southern California’s sea side ‘Gold Coast’ which comprises some of the most beautiful and expensive real estate in the world, it was common to see oceans of ultra expensive exotic cars. Matter of fact, the top selling Lamborghini dealer in the world was located in this area. Even this elite financial class of consumers are subject to the crash. Exotic cars, luxury ‘assets’ are now selling for 40+ less than they were just 90 days ago. To put that into perspective, that Lamborghini dealer, the #1 selling Lambo dealer in the world, closed its doors recently.
Housing became the de-facto place to splurge. Home priced skyrocketed. In less than 36 months some real estate markets doubled in value.
Now that has all changed.
In 2006, that $1,000,000 house that had 14 offers in the first day it was offered for sale…is now languishing on the market. The current asking price is $575,000 with no takers. Because those sellers re-financed and spent all of their equity they are now hopelessly ‘upside down’ in their homes. Only a skilled short sale agent will save these sellers from a foreclosure. Of course, agents who have taken the time to learn how to help sellers with a short sale are in huge demand.
While certain pockets, such as Manhattan, San Francisco and Boston, remain high, real-estate prices around the country have fallen dramatically. The downside to this, of course, is that many people now owe more money on their home than their home is worth. The upside is that valuations are much more realistic — and affordable. Yesterdays $1,000,000 home is todays $500,000 home..and falling.
Until recently, sellers in wealthy neighborhoods were somewhat protected from the subprime credit crisis and were still drawing buyers with high salaries, good credit scores and a cushion of savings. But the problems worsened after global financial-services giant Lehman Brothers collapsed on Sept. 15. Credit markets froze, corporate giants laid off thousands of highly paid workers, and the stocks that padded the portfolios of the wealthy plummeted.
Case in point. In La Jolla, California where the average sales price is still around $1,000,000. It’s common to have international buyers in this market who are investing in their 3rd of 4th homes. After the AIG collapse there were dozens of ‘In Escrow’ homes fall out of escrow. In other words, even the most well heeled buyers weren’t willing to close on homes in this economy. Many walked away from huge earnest money deposits.
Even once seemingly impervious markets such as New York City, Florida and California, which had attracted well-heeled international buyers looking to take advantage of a weak dollar, began to struggle as the global economic slowdown washed over Europe, Asia and even the Middle East.
Most economic forecasts are now calling for this seemingly endless housing correction to bottom as late as 2013. The original forecasts of a housing bottom in 2009-10 didn’t take into account the global recession and massive job losses.
Barron Rothschild said, ‘When There Is Blood On The Streets, Buy Real Estate’.
With that said, its probably not a great time to buy real estate unless you plan on staying in the home for at least 5 years. It will take at least 5 years for any sort of sanity to return to the housing markets. Smart buyers (and investors) are looking for bargains. As prices for homes continue to fall a new breed of buyers is entering the market. Buyers with significant downpayments, good jobs and credit. Buyers who aren’t buying to ‘make a fast buck and move up’ but, buyers looking to settle into a community and make it their home.
And longer term? Over the next 10 to 20 years, housing economists expect prices will rise again — but, on average, probably not nearly as much as they’ve averaged over the past decade. That isn’t to say that some places won’t experience booms (and busts). But, the experts say, you should generally expect house prices to rise just a bit more than inflation and roughly in line with household income.
Karl Case, an economics professor at Wellesley College whose name adorns the S&P Case-Shiller home-price indexes, has studied U.S. house prices going back to the 1890s. Over the long run, he says, home prices tend to increase on average at an inflation-adjusted rate of 2.5 percent to 3 percent a year, about the same as per capita income. He thinks that long-run pattern is likely to continue, despite the recent choppiness.
Other experts make similarly modest predictions. William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology, says he expects house prices to increase at a rate roughly one percentage point higher than inflation over the long term. Celia Chen, director of housing economics at Moody’s Economy.com, a research firm, expects house prices to increase an average of around 4 percent a year over the next couple of decades.
Some experts say it’s a bad idea to count on your home rising in value at all. People should think of their own homes mainly as places to live, not as investments, advises Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley. Sure, home mortgages provide tax benefits, and most homes appreciate in value over the long run, he says, but there is always risk.
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