Saturday, August 18, 2012

Real Estate Mini-Bubble About to Burst

Real Estate News

Real estate prices have seen a small price uptick this summer. Not widely reported is that the price uptick is due to a falling inventory of homes for sale. The falling inventory is tied to "shadow inventory" and the lack of ability to foreclose on properties in many states. As these properties come back on the market, there will be more downward price pressure.

In short, Obama and state Democrat regulatory policies have made things worse where implemented.

Reuters from June 2012:
In September, banks filed nearly 5,000 foreclosure notices in Nevada. By February, just 460 were served, according to online foreclosure property marketplace RealtyTrac.

Ricky Beach, a real estate agent in Reno, Nevada, said the new law, AB 284, "has pretty much killed the market here." The lack of foreclosure activity has led to a dearth of inventory, he said, with the number of homes for sale in the area down to 778 today from more than 1,700 in September.

This has triggered a "mini-bubble" in housing prices because the few properties available are receiving multiple bids. The only problem: No one thinks the gains are sustainable.

"The bill did nothing to solve the crisis - it's just prolonged it," Beach said. "Sooner or later the banks will work out how to deal with the law. And then foreclosures will hit the market, and prices will crash back down."
At the request of Reuters, RealtyTrac compared three states where borrower protection laws had prolonged foreclosures - Florida, New Jersey and New York - with three with fewer protections and where foreclosure completion times were shorter - Arizona, California and Virginia.

In the three states with the shorter delays, the average sale price for foreclosed properties has been trending higher, suggesting a recovery that has underlying strength.

In Florida and New Jersey, home prices rose last year as foreclosure activity greatly slowed after the robo-signing scandal. But in the last few months, RealtyTrac says, foreclosure activity has picked up there after a settlement between major banks and the U.S. government over robo-signing - and home values have started to drop.

RealtyTrac Vice President Daren Blomquist says the data shows that delaying the foreclosure process in Florida and New Jersey created a mini-bubble, followed by another price drop, and had thus merely prolonged the housing slump in those states.


A study by three Federal Reserve economists compared the foreclosure processes and outcomes for borrowers in the 20 "judicial" foreclosure states - where banks must seek court approval before they can foreclose - and the 30 "nonjudicial" ones, where such court oversight is not required.

Their December study of foreclosure outcomes from 2004 to 2011 was published by the nonpartisan National Bureau of Economic Research.

The economists also looked at Massachusetts, where a 2008 "right to cure" law gives borrowers more time to make good on their mortgage arrears and has greatly extended the time it took banks to foreclose.

Their conclusion? States with judicial protection over the foreclosure process or the arrears system "indiscriminately" slowed down the foreclosure process, but with no measurable benefits.

In fact, delinquent borrowers were more likely to make good on their arrears in nonjudicial states than in states where they had more time to do so. These borrowers were also just as likely to be repossessed in a judicial state than in a nonjudicial one - it just took longer.

Foreclosure protection laws also probably led to an increased incidence of blight, the economists found.
The question on how housing prices will fare through 2012 and into 2013was addressed by Kiplingers in January 2012:
Currently, about 1.84 million home loans are 90 days or more delinquent (a strong predictor of foreclosure) but not yet foreclosed on, and 2.17 million have finished the foreclosure process but havent yet been offered for sale, according to Lender Processing Services (LPS). What happens to home prices if and when they come to market? Villacorta, of Clear Capital, says that despite the downward pressure on prices by foreclosures, prices wont tank as long as lenders continue to bring additional foreclosures to market at a steady pace.

Bank-owned foreclosures sell for an average discount of one-third off the per-square-foot price of conventional homes for sale, according to RealtyTrac. Buyers who want to snag a bargain on a distressed property will face competition from investors, and the biggest bargains may require a lot of work. Short sales, or homes sold with lenders permission for less than their owners owe on their mortgages, have also grown in number. Lenders take an average of 16 weeks to sign off on a short sale, so patience is imperative.
January 2012 was an economy long, long ago and the Presidential race was far, far away. What has changed?  CNN Money grabbed the prognosticating duties in an August 8, 2012 report outlining a Fiserv study:

(Heavy Edit Warning)
The forecast, which tracks 384 housing markets, predicts that nationwide home prices will dip another 1% between March 2012 and March 2013.

At that point, prices will start gaining momentum, said Fiserv, which analyzed data from both the Fiserv-Case-Shiller home price index and the Federal Housing Finance Agency. The financial analytics firm is forecasting that nationwide home prices will climb 5% between March 2013 and March 2014.
 As Fiserv pointed out, eight out of the 10 markets that saw the biggest prices gains over the past 12 months are projected to fall the most over the next year.
Inventories of homes for sale have dropped to their lowest levels since 2004.
Also helping to lift home prices in some areas is the fact that fewer foreclosures are taking place. Instead, more struggling homeowners are selling their homes in short sales, which tend to fetch higher prices than foreclosures.
One thing that could derail the housing market's recovery is the shaky economy, said Stiff. If confidence in that drops -- either because of financial crisis in Europe or the pending "fiscal cliff" here in the U.S. -- it could take home prices down.
City Prices March, 2011 - March, 2012 Forecast March, 2012 - March, 2014
Phoenix 6.4% -9.50%
Los Angeles -4.6% -0.40%
San Diego -2.7% 2.50%
San Francisco -1.6% 8.70%
Denver 2.4% -2.60%
Washington 3.4% -0.30%
Miami 5.6% -13.40%
Tampa, Fla. -0.9% 3.20%
Atlanta -17.4% 6.70%
Chicago 0.4% -1.50%
Boston -1.6% 2.10%
Detroit -1.5% 2.90%
Minneapolis 3.4% -0.70%
Charlotte, N.C. 1.6% 2.10%
Las Vegas -7.4% 8.9%
New York -0.9% 1.70%
Cleveland -2.4% 1.90%
Portland, Ore. -2.8% 8.80%
Dallas 2.7% 0.60%
Seattle -1.2% 4.40%
United States -1.9% 4%
Index of 20 cities -0.80% 1.70%

More Info from CNBC


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