The cry of “wave!” continues. You don’t have to wait long between news stories about shadow inventories and impending waves of foreclosures that are poised to devastate the housing market.
In September, Bank of America predicted “a spike from now to the end of the year in foreclosures.” A spike that didn’t happen. Also in September, Amherst said that “favorable seasonals will disappear over the coming months, and the reality of a 7 million-unit housing overhang is likely to set in,” a prediction that was repeated last month in a hearing before the House Financial Services Committee.
Auctioneers on the courthouse steps called me before the end of the year to tell me to get ready for January as they had heard from their managers that properties will finally start selling, rather than continually postponing come January 1. Didn’t happen.
Even commenter’s on my blog posts try to explain to me that there is a huge shadow inventory — as if I wasn’t aware that there a lot of property owners who are underwater, delinquent on their mortgage, or stuck in foreclosure limbo.
Like everyone else, I see the signs that a wave of foreclosures should have been upon us long before now. Yet for some time now I’ve been a fairly lone voice in saying that a foreclosure wave isn’t coming.
So why do I believe there will be no foreclosure wave, at least not in the near future?
Because we simply don’t have either the political will, or the financial capacity to foreclose on everyone who is currently delinquent, not to mention the millions more who will become delinquent if the housing market is crushed with a wave of new inventory.
Our financial institutions are still struggling to get their footing, the FDIC is in no position to bail them out, and taxpayers have had more than enough of bank bailouts.
And while little has been done by Congress to address the root problem of negative equity, they certainly have worked to prevent foreclosures and preserve home values.
So if not a wave of foreclosures, what do I think we can expect instead?
Foreclosure limbo consisting of continued government interventions, whether in the executive, legislative or judicial branch, at the state level, by the Fed or even supposedly independent oversight boards.
They’ll accomplish this by keeping a bid under housing prices through low interest rates and tax credits; forcing banks through hoops; threats; foreclosure moratoriums or any other means necessary. As such I see little chance that housing will be allowed to fall, no matter the cost. Instead we will “extend and pretend” for years to come.
Foreclsoures will continue to be trickled out at something near the current rate. They can’t stop foreclosures completely or everyone would simply stop paying their mortgage.
Some may argue this won’t work. Certainly homeowners can’t just stay in their homes free forever. Perhaps, but governments should also not be able to run deficits forever – yet for now at least, they do.
You are correct that the government is trying everything they can to keep the tsunami of foreclosures from hitting the market.
But, extend and pretend doesn’t work in real life. It didn’t in Japan where they tried this policy. The problem is so many homeowners have payments they cannot afford even if they have a job (especially if recasts push payments higher). Rents are falling. So eventually these homeowners will see substantially lower costs for renting. This will result in people leaving their homes.
The government can only manipulate so long. Duct tape is not a solution; it just buys time.
Since you specialize in foreclosure investing, I would recommend keeping some powder dry. You will see plenty of opportunities.
The “wave is coming” is turning into our generation’s “A Wolf is Coming.” We have heard for years about the tsunami of foreclosures that never materializes, but I spent way too many hours on courthouse steps last year waiting for homes that managed to be postponed month after month.
I think you nailed the situation. Nobody wants millions of people foreclosed on and kicked out of their house. The powers-that-be will prefer to muddle through and hope a recovering economy will help to prop up the residential market. If we can keep the tax credits and low interest rates, it might work.
You might be right on that. What the federal government is doing with our country’s finances is really sick. They’re just postponing, and worsening, a catastrophe that will likely eventually happen. Money isn’t real anymore. It is just numbers.
Our national debt increased by 1.7 Trillion last year, and this years projections look to be about the same. If every American were asked to come up with the cash they owe on the national debt, every man woman and child would have to come up with more than $40,000….
I tend to agree that we will not see a wave of foreclosures. Yes, there is a back log of them for sure and there are more to come. In addition to implementation of programs etc to stave off foreclosure for many, in reality I wonder if there is not also a level of banker greed involved. I live and work in the San Francisco East Bay (Oakland, Berkeley, Piedmont), and the reality is inventory is down and we are seeing multiple offers, a leveling and even an increase in home sales prices and better terms for the sellers on the contract. Why would the banks want to flood the market right now with inventory and have prices plummet again and all of those homeowners still underwater really do throw their hands up and say forget it. The banks will could make more money over the long term if they release the inventory slowly, not all at once. Supply and demand. This is the stuff you learn in economics 101. The banks are here to make money, and they have been recently and will do whatever they need to to continue to do so. Seems pretty obvious to me, and yes, the wave that everyone said was coming for months now has not appeared and based on the economics of it all, I don’t predict we will see it.