Banks Rev Up Foreclosure Machine
For almost 2 years, we've been told government-backed loan modification efforts and foreclosure moratoriums would help ease the pain of the ongoing housing crisis. It's not working.
Despite recent calls to the contrary -- this morning's came courtesy of real-estate mogul Sam Zell -- residential home prices are still in free fall, and the bottom will remain elusive.
Picking up a trend noted weeks ago by housing blogs and other real-estate analysts, the Wall Street Journal reports banks and mortgage-servicing companies are pushing through foreclosures at the fastest rate in more than a year.
JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC), 3 of the country's biggest loan servicers, scaled back foreclosure efforts in recent months at the request of the Obama Administration. Now, with the bans lifted, a new wave of repossessions are simply a matter of time. In California, notices of default and trustee sale, which precede foreclosures, spiked in March as moratoriums expired and lenders returned to "business as usual."
Banks, especially those collecting payments on behalf of Fannie Mae (FNM) and Freddie Mac (FRE), say they're doing everything they can to keep borrowers in their homes. But according to GMAC (GM), as few as 10% of struggling homeowners qualify for the Obama Administration's highly touted foreclosure prevention program.
The logical conclusion is that this new wave of bank owned homes being dumped onto the market will put even more downward pressure on housing prices. And while this is true on a localized, market by market level, widely monitored home price indicators may not tell the whole story.
As noted by the Field Check Group, a real-estate analysis firm, delinquencies on jumbo loans are rising at an alarming rate. This is consistent with trends we have been seeing over the past 6-9 months as prime defaults are now rising faster than subprime.
Currently, low-end, inexpensive homes dominate sales data, dragging down median and average prices. Foreclosures, however, are creeping into high-end markets, and coupled with high levels of inventory and weak demand, prices are tumbling. As forced sales become more prevalent and transactions rise in these well-to-do areas, expensive home sales will begin to represent a larger portion of transactions used in broad measures of prices.
In the coming months, we could see home price measures falling at a less severe rate as the data mix becomes less skewed towards the low end. The bottom will be cheered, recovery will be lauded by the spin machine known as the National Association of Realtors, and buyers around the country will be lured into a false sense of security that housing has finally hit rock bottom.
Meanwhile, back in reality, property values -- actual homes, rather than statistics -- will keep sliding.
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So we'll probably "bottom out" and then be flat for awhile while everyone catches their breath, and then go back to the "just above the rate of inflation" that it was before. A house is a great place to live, not pay rent, and to raise a family (or even collect rent). That's about it.
My instinct is that we will experience a reversion of sorts to a preference for renting. That should finish the housing/condominium market for some time to come. Long ingrained attitudes change very slowly, so houses will have their some bounce, but the secular trend is probably changing.
I wonder if all the income and property tax subsidies will begin to go away? As renting becomes more 'fashionable' perhaps renters will begin to object to interest deductions.
Am I being too optimistic here?
So, we are closer to a bottom in most areas of NV, CA, FL and AZ but not at the "bottom" yet.
Other large markets have yet to experience the rapid decline - NY being the most notable.
And once the malls start emptying and areas that haven't been hit show huge declines, the impact on consumer behavior will reinforce the deflationary pressures the Fed is trying to slow.
