'Shadow Foreclosures'

chisueSeptember 30, 2010

Please check my post about this on the "Household Finances" forum. It appears that there are another 22 months of real estate 'supply' soon to enter the foreclosure pipeline.

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Oh.... I expect much more than that, actually....

    Bookmark   September 30, 2010 at 8:35PM
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I think the problem is far worse than "authorities" and REA's would have people believe.

Dave, your take on the situation on the househould finances forum was great. Part of the problem is that banks are sitting on a lot of delinquent housing and refuse to write it off/start foreclosure proceedings so they don't have to have yet another bad loan on their books. Which, imho, is a form of "cooking the books". As an accounting student, our professors would never, ever think that behavior is allowable.

So on top of current foreclosures, and these shadow foreclosures, there is going to be a continuing elevated stream of foreclosures for a while now due to the econmy.

And on top of that, there have to be MILLIONS of households that are holding off on selling their homes so they can "wait it out". Which means when things appear to be getting better, a flood of homeowners are going to try to sell, which is then theoretically going to keep prices low.

Through all of the reading that I've done through various places, The Economist, Fortune, and many others, the problem is far worse than a lot of the see-sayers would have people believe.

And in some perverse way I think this is a good thing. Housing prices were WAY out of control. They are still right now above what they "should" be to make housing affordable for the majority of the middle class. For example, the only reason I was able to buy a house (I'm 26) is because of the prices being lower. Same with some of my friends. We could have never hoped to have done so even a few years ago.

There is no logical reason to believe that prices will, or even should rise in the near to medium term future.

Throw in the fact that house prices were rising way too high and wages were flat in real terms and that's another cause of this whole mess and the fact that house prices got way out of whack with affordability.

So IMHO I'm not expecting to be able to sell my house for much more than I bought it for for AT LEAST 5 years, if not longer.

And, the truth of the matter is, houses *are* selling...if the seller is reasonable (given the current environment) in their pricing. I've seen many houses even in this urban neighborhood sell quite fast if they are priced right. But the majority of the houses are priced too high and sit there for a year, two years, even three.

Thank you for bringing this subject up Chisue.

    Bookmark   October 1, 2010 at 12:11AM
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The banks are holding off on flooding the market with additional foreclosures, so that the supply doesn't increase to a point where it devalues the market even further. This strategy helps them and us as homeowners and buyers and sellers.

    Bookmark   October 1, 2010 at 7:28AM
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"They are still right now above what they "should" be to make housing affordable for the majority of the middle class."

How did middle class affordability become the housing value metric?

Maybe a lot of people who have bought should have stayed in the rental market?

No matter what it takes a certain amount of financial acumen to purchase and hold onto a house.

Unsteady income is a problem.

When it is a higher unsteady income it can be tolerable.

The implicit assumption is that money saved in flush times can allow riding out income shortages.

'Interest only' lonas were develped to allow heavily invested buyers to keep their money working in the investment market, not to lower payments to make things more affordable.

'No docs' loans had been aimed at very large down payment buyers.
The lender's risk is greatly decreased when 50% or more is put down.

The market abuses (by both kenders and borrowers looing to make a fast buck) put a lot of unqualified buyers into houses they could not realitically afford.

The slightest ripple in their finances and the whole thing comes apart.

    Bookmark   October 1, 2010 at 11:47AM
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I read that Chase and Bank of America are 'halting' all further foreclosures because of possible improprieties. What does that mean as far as all these houses which are now pulled from being foreclosed??

Yesterday it was Chase and today BoA. I'm wondering what this will mean to the market. Sounds 'fishy' to me!


    Bookmark   October 1, 2010 at 9:56PM
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This is one of the reasons why.

Here is a link that might be useful: Shadow Foreclosures

    Bookmark   October 3, 2010 at 1:48PM
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