Housing Headed For Trouble

Housing Headed For Trouble

As a short sale specialist, my listings usually sell very quickly. However, since March 2010 began my short sale listings are selling more slowly than they did previously. I attribute this to the first-time home buyer tax credit since those buyers were the primary buyer pool in my market Middle Tennessee. I think this is particularly true for most markets in the US where the tax credit had a substantial short term impact (particularly in lower priced markets where the $8,000 tax credit is a fairly substantial percentage of the sale prices). Now that the first time home buyer tax credit is nearing expiration, those tax credit buyers are, apparently, not willing to buy new short sale listings (they will still buy pre-approved short sales that can be closed in 30-45 days with a reasonable degree of certainty) since there is no guarantee that they will be able to close by 6/30/2010 (the expiration of the tax credit). Therefore, the only way to sell these short sale listings is to lower the price. These increasingly lower priced short sale and pre-foreclosure listings will put downward pressure on new construction and other retail priced listings.

The next phase of the great real estate meltdown is beginning to unfold as I predicted it would over 1 year ago (see my blog post from 11/2009 for a detailed breakdown of the drivers of the real estate market: Our Phony Real Estate Market). Unfortunately, the tax credit was nothing more than a temporary band-aid solution (really a gimmick) that will ultimately result in the tax credit buyers ending up in foreclosure at a very high rate since they are underwater the moment of closing (most put little to nothing down and have very little cash reserves) and will be even more so as the market declines. The buyers who purchased short sales and foreclosures as substantial discounts will likely be fine. That is why I only sell those types of properties. Unfortunately, home buyers who purchased new construction or other retail priced listings will be in trouble in the next few years. The main problem is that the entire US economy was built on debt. Consumer spending, which was 70%+/- of the entire US economy, was built largely on consumer debt (think credit cards, home equity loans, HELOC's, personal loans, etc.). Without this debt there can be little to no growth in consumer spending, and by extension, little to no growth in the US economy, until personal incomes increase at least enough to pay down current debt and still leave enough to spend more. Given that unemployment still hovers near 10% (the real number is about 16%) this will not happen anytime soon. It is just a matter of simple accounting. In addition to the end of the tax credit buyer ear there is the Option ARM foreclosure wave coming. As a result, there will lots of foreclosures and short sales over the next 5-10 years.

Short Sale and Foreclosure Help and Assistance for Real Estate Investors, Home Builders and Developers in Nashville TN and Middle TN. If you are a Nashville Tennessee, Franklin Tennessee, Brentwood Tennessee, Nolensville Tennessee, Spring Hill Tennessee, Murfreesboro Tennessee, Smyrna Tennessee, La Vergne Tennessee, or Middle Tennessee real estate investor, home builder, condo developer or real estate developer who cannot pay the property/project mortgage payments (due to the poor economy, adverse financing conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), have already defaulted on the mortgage, or are already in foreclosure, or owe more than the property/project is worth, please contact me to discuss your options including a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/project). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Springfield TN, Gallatin TN and Mt. Juliet TN). If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Nashville Tennessee and Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Delinquencies on home-equity loans hit record

According to this Los Angeles Times article, Delinquencies on home-equity loans hit record, the number of delinquent home equity loans reached 3.52% in the 1st quarter of 2009. The article cites mounting job losses as the primary culprit. The article also mentions that credit card delinquencies reached a record of 6.06% during the same period.

Per my previous posts, it is "only going to get worse". If you cannot afford your home loan payments (mortgage(s) and/or home equity loan(s)), your best option is to request a loan modification in order get your monthly payments reduced. If that does not work and/or your home is worth less than the debt than a short sale is your next best solution. Simply defaulting is not a good answer. If you need assistance in stopping foreclosure proceedings feel free to contact HaltingForeclosures.com.

Duplicating Disaster: A Lesson Not Learned

According to this New York Times article, Sweetening the Pot for Home Buyers, the $8,000 Federal Tax Credit for first time home buyers created by the Obama administration will not have much of an impact (I believe I told you this previously) due to most first time buyers not having enough money for a down payment and to cover closing costs.  The article trumpets a Missouri plan that allows home buyers to borrow that $8,000 to buy that home and then to repay it when they receive the tax credit.  In my opinion, this is a recipe for more disaster.  The problem was and is that TOO MANY FINANCIALLY UNQUALIFIED PEOPLE PURCHASED HOMES.  Offering this "loan" will only exacerbate the problem.  If a person cannot find a way to save $8,000 to buy a home then they should not be buying a home.  What happens when the roof leaks, or heating system needs replacement, etc.?  These "home buyers" do not save money, they spend.  That is why they could not even put together a measly sum like $8,000 to buy a home.  The problem is that we have turned owning a home from a privilege into an entitlement.  When will we learn!?

My prediction is that if this Missouri program gains traction we will see increased rates of foreclosures for these "home buyers".

Reuters: One in 8 U.S. homeowners late paying or in foreclosure

According to this Reuters article, One in 8 U.S. homeowners late paying or in foreclosure, 1 out of 8 US homeowners is behind on their mortgage, or already in foreclosure. This is absolutely stunning. According to the article even prime loans are experiencing higher foreclosure rates caused by job losses and overbuilding. The author of the article did not seem optimistic that Obama's foreclosure plan would work. I agree. This will certainly lead to more short sales and foreclosures and result in hurting the housing market even more. Since Tennessee has a higher than average number of foreclosures I expect the TN housing market to be hurt more than average over the next several years.

New Government Programs to Reduce Home Foreclosures

According to the article U.S. Sets Big Incentives to Head Off Foreclosures on the New York Times website the Obama Administration unveiled two new plans that will help many in people in foreclosure.

In my opinion neither plan will not solve the foreclosure problem.  The problems with the plans are as follows:

1. Investors are excluded.  Since many foreclosures, particularly in Florida, Nevada, Arizona and California were from investors (actually speculators) those foreclosures will continue.
   
2. Second homes and vacation homes are excluded.  Since many people not only purchased too much home for their budget, but also too many properties (i.e. second homes and vacation homes) they got into financial trouble.  Since the plans do not cover these owners the foreclosures will continue.
3. Many people who are in foreclosure are there as a result of not being financially responsible.  I have personally seen people with combined incomes of almost $100,000 not be able to pay mortgages payments of $2,000 to $2,400 per month (includes principal, interest, taxes and insurance).  The Obama plans allow for mortgage payments to be as low as 31% of a person's income via paying matching funds to the lenders.  The numbers I show above are less than 31% yet those people still did not pay.  The reality is that the housing payment is only one part of the problem.  Typically, these people had a lot of other debt and just spent recklessly.
4. Both plans require that the home owners have enough income to pay the modified payment.  This is meaningless if the people have lost their job due to health issues or the current economy.  For a while now health issues which cause a person to lose their job have been a big factor in foreclosures.  Since the plans require that people have a job people in this position will not be helped by the plans.
5. Plan 1 (Refinancing for Strong Borrowers) limits the total new loan to a maximum of 105% of the home's current market value.  Since many people now owe far more than their home is worth even if they are current on their mortgage payments they will not see any help from Plan 1.  The result will be that these homeowners will eventually slip into foreclosure as the market value of their home declines.
6. Plan 2 (Loan Modifications for At-Risk Borrowers) does not place a limit on the loan amount with respect to the market value of the home, but it limits the reduced modified payments to a term of 5 years.  After 5 years the interest rate will probably reset to today's market rates.  The problem is that for may people they still will not be able to pay the market rate in 5 years.  Also, this Plan fails to address the issue of what happens when the people cannot pay the modified mortgage and the loan amount is still greater than the market value.  In short, this plan is betting that the market values will substantially improve in 5 years.
7. Neither plan addresses the core reasons of why we are in this mess to begin with.  The core reasons are: (1) Homes and real estate just got too expensive as a result abnormal demand caused by what I call "housing euphoria" which resulted from an increase in the homeownership rate that was enabled by loose credit standards.  (2) People started buying homes that they could barely afford even with a 2 income family so there was no room for any job loss.  (3) People purchased homes with risky adjustable rate mortgages in order to allow them to buy more home in the short run without regard for any rainly days or "what if's".  (4) People just borrowed and spent too much in general.

Top 10 Things to Do When You are or Will be Behind on Your Mortgage Payments or are already in Foreclosure

The purpose of this blog is to help people who are or will be behind on their mortgage payments, or are already in foreclosure.  I know that being in that situation is very stressful.  I have seen it first hand as I have helped many clients through those difficult times.  I welcome questions and comments from people needing assistance.

 

As a first attempt at providing some assistance, I came up with the following list of the “Top 10 Things to Do When You are or Will be Behind on Your Mortgage Payments or are already in Foreclosure”.

 

1. Take a step back to reflect - Take a deep breath and regain your composure.  Getting behind on your mortgage payments or being in foreclosure is a difficult problem.  You cannot solve any problem if you panic and are not capable of reasoned thought.
2. Relax - What is the worst that can happen?  You will lose your home and possibly have to move in with relatives, or into an apartment at least for some time.  It might be embarrassing and even humbling, but it is not the end of the world.  No one is going to throw you in jail.  Your life is not over.  You can and will rebuild your life after you get through this.
3. Gather information - Put together a monthly budget of all your income and expenses.  Use your net take home pay (i.e. after taxes).  Be sure to include all your living expenses (i.e. food, health insurance, housing payment, vehicle payments, gas and vehicle repairs, meals, grooming, pet expenses, entertainment, child support, alimony, etc.  You need to know exactly where your income is going and how much you are really short each month.
4. Be honest with yourself - Ask yourself some difficult questions and be honest with yourself.  How did you get here?  Did you buy more home than you could reasonably afford?  Do you buy too many things on credit?  Are you a shopaholic?  Can you do without things?
5. Analyze - Put together your monthly budget (income and expenses).  Analyze your budget to see if you can eliminate things from your budget.  After cutting your budget see if there will be enough money left each month to pay your mortgage/housing payment?
6. Make your plans - If you cannot afford your home with your current mortgage even after you have trimmed your budget, you have 2 basic options: (1) contact your mortgage company to see if they will modify your loan terms.  (2) Sell your home.
7. Decide - If you prefer to try and stay in your home then a loan modification is your first option.  Call your mortgage company and tell them that you cannot afford your housing payment and that you need a loan modification.  They will likely send you to their loss mitigation department who will then fax or mail you their loss mitigation package, which you will need to fill out.  Your mortgage company will then review the information to see if a loan modification is desirable for them.
8. React promptly - If the mortgage company does not offer you a loan modification (or offers one that still will not help enough) then you need to sell your home.
9. Decide - You will need to make a decision to agree to the loan modification, or accept the sale of your home.  If you need to sell your home price it lower than any other home to get it sold fast.  Buyers will not pay retail prices for homes in foreclosure, or homes where the mortgage balance is greater than the market value (a short sale) due to the “as is” risk or to the lengthy time involved for a response in the case of a short sale.  In either case, you will need to price your home with this in mind.
10. Act – Regardless of what you decide to do you need to act quickly and decisively.  Letting the bank foreclose on your home will severely harm your credit for several years and in many states the bank can still come after you for their net loss after liquidating your home as an REO (this is called a deficiency judgment).  If you opt for the short sale you should be able to lessen the impact to your credit and eliminate the threat of a deficiency judgment.