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.

Recession 2 Coming Soon?

Recession 2 Coming Soon?

According to this BusinessWeek article, Krugman Sees 30-40% Chance of U.S. Recession in 2010 (Update1), there is a good chance that rising interest rates (caused largely by the end of the massive $1.25 trillion mortgage securities purchase program and the $175 billion Fannie Mae/Freddie Mac/Ginnie Mae mortgage securities purchasing programs in April 2010) that we could experience another recession in 2010. The article states that Paul Krugman, a Nobel Prize winning economist and economics professor at Princeton University, believes that there is about a 30% to 40% chance of a recession in the 2nd half of 2010 and that the chance of growth slowing down enough such that unemployment increases again is more than 50%. Krugman also said that mortgage rates will go up some and housing sales may decline. The real issue here (not mentioned in the article) is the entire US economy is based on debt, not income, assets and productivity. This debt is what fueled consumer spending. Now that debt is right near the ceiling there is just not much chance that massive government spending and subsidizing of interest rates will have any lasting effect. My opinion is that we will see another recession and this one will be worse than the 1st one since the government will have made things worse with all the borrowing and spending. As a result, housing will decline and there will be more short sales and foreclosures.

If you are a Middle TN homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and 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/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), 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, Robertson County TN, Maury 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, Spring Hill TN, Gallatin TN, Springfield 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 Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Housing Faces Upcoming Challenges

Housing Faces Upcoming Challenges

According to this Real Estate Economy Watch article, The Last Days of the Homebuyer Tax Credit, there are 2 upcoming issues that will hurt housing.

1. Permanent Expiration of the Housing Tax Credit - According to the article, "This is it. No more extensions. When April 30 comes and goes, the tax credit for everyone is over and buyers have only until June 30 to close. With the prospect of getting more than they bargained for in the short term, the housing lobby agreed." In essence lawmakers made representatives of the National Association of REALTORS (NAR) promise that they would not come back and ask for another extension of the housing tax credit.  Therefore, buyers have until April 30, 2010 to sign a contract to buy a home and June 30, 2010 to close in order to get the tax credit.  That's it.
2. Government Mortgage Purchasing Will Decrease Dramatically - According to the article, "About the same time the credit goes away, something more serious will hit the housing markets, the end of the Federal Reserve’s programs to buy up $1.25 trillion of mortgage-backed securities and to lend as much as $175 billion to Fannie Mae and Freddie Mac to do the same. Mortgage-backed securities are sold to investors and the better the market for them, the lower the interests that consumers pay. These government programs to buy mortgage securities have helped to prop up the mortgage-backed securities markets and keep mortgage rates at record low levels for nearly a year. The Fed announced two weeks ago that both are going away April 10."

In my opinion, the effectiveness of the tax credit will wane much sooner than April 30, 2010.  After the first group of buyers took advantage of the tax credit, most of the buyers that did not do so were probably not interested in buying.  I will agree that some simply simply were not ready to buy the tax credit extension may spur some of them to buy now, but I believe that a majority simply felt that $8,000 was not enough.  The tax credit would have to be larger to get this next group of first time buyers off the fence.  Since the tax credit was not increased I predict a lesser tax credit effect this 2nd time around.  I believe that you will see an initial surge of tax credit buyers followed by a long lull followed by a surge near the end as procrastinators try to close before June 30, 1010.  The overall results will be disappointing.

The upcoming decrease in government mortgage is a much bigger problem.  Per my previous blog post, Our Phony Real Estate Market, right now the housing market is almost entirely being supported by artificial government intervention.  When that government intervention ends the housing market will have to survive based on the fundamentals (think jobs and income).  Therefore, it will be a difficult time for housing if unemployment is still around 10% or worse and all these government housing subsidies expire.  This does not even factor in the coming wave of Option ARM foreclosures caused by a large number of Option ARM mortgages resetting starting in the spring of 2010.  Because of these issues I predict another decline in housing beginning in 2010. The gist of the matter is that there will be more short sales and foreclosures and this will drive the price of homes down further. Some areas will be harder hit than others, but the effects will be felt nearly everywhere.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and 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/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, 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 and around 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 and Belle Meade 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 Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Our Phony Real Estate Market

Our Phony Real Estate Market

The "real estate recovery" (or market bottom called), which has been trumpeted by the "drive by media" (translation - they are too lazy to do any real research) for almost a year now, is a fraud, a sham. All we are seeing is the result of artificial government market propping. I cover this in my blog posts: Real Estate Recovery or More Problems (Short Sales and Foreclosures)?, US Government Provides Funding For 95% Of Mortgages, New Subprime Lender: The US Government and Sad Loan Modification Story. If you do not want to read them the key points are below:

• 59% of all home sales in 2009 are to buyers with FHA, VA, USDA and other government guaranteed/insured/subsidized loans.
• The US government is now purchasing about 95% of all mortgage loans via Fannie Mae, Freddie Mac and Ginnie Mae. "Lenders" are really nothing more than loan brokers.
• Government promoted "foreclosure resolution" and "loan modification" programs are nothing more than subprime schemes. Homeowners are given temporary rate and payment reductions, but the real problem (negative equity) is not addressed. The result will be more foreclosures and short sale in the future as these modified loans re-default (most do), or expire. The negative equity will remain and until it is addressed, no real solution will be offered to this financial and real estate mess.
• The $8,000 first time home buyer tax credit caused an additional 350,000+/- home sales to occur, but about 1,900,000 people will receive the credit according to NAR (these numbers will be much higher due to the recent extension). The result is that each one of those additional 350,000+/- home sales cost approximately $43,000 (1,900,000 x $8,000 / 350,000) in taxpayer money. Based on the typical 1st time buyer home purchase price of $200,000, the cost of each additional sale created was over 20% of the sale price. Clearly, this program is absurdly costly and has no merit. All the tax credit is doing is temporarily propping up housing prices so they stay high relative to historical norms. The home buyers who pay retail prices for homes due to the tax credit will end up the next generation of underwater homeowners, stuck in the homes (prisons) for many, many years due to the negative equity unless they want to short sell their homes.

The real question is what to do if you are a current owner of a home who may want to sell, or a buyer who may want to buy. Here is what you should do:

• Sellers - If you think you might want to sell soon do not wait. Sell now before the market gets worse. This winter and the spring of 2010 will be your window before the government market propping starts to fail.
• Buyers - If you cannot wait a few years to buy a home or other property when the market hits bottom I recommend that you buy only short sales, foreclosures, bank owned properties and other distressed properties in order to price in the coming market decline.

Update (9/8/2010): This article was written before the extension of the 2009 housing tax credit to April 30, 2010 (closing before September 30, 2010), so the "Seller's Window" advice above was off by a few months, but did in fact turn out to be accurate. Housing prices are declining again and will continue to do so for the foreseeable future.

Short Sale and Foreclosure Help and Assistance for Homeowners and Property Owners 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 homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and 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/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR, Expert and Real Estate Investor. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), 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, Robertson County TN, Maury 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, Spring Hill TN, Gallatin TN, Springfield 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, Real Estate Expert and Real Estate Investor.

If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing a Fannie Mae foreclosure, a Freddie Mac foreclosure, bank foreclosure or REO, a short sale, or other distressed real estate in order to get a great home or investment property at an attractive price without dealing with the difficult REO/foreclosure listing agents and you want aggressive and professional buyer representation, please contact me, or visit my website Search the Middle Tennessee MLS - Find Middle TN Short Sales, Pre-foreclosures, Foreclosures & REO's so that you can find foreclosures, short sales and other distressed real estate and homes in Middle TN. I help home buyers in 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 and Belle Meade TN.

Underwater Homeowners Walking Away From Their Homes

Underwater Homeowners Walking Away From Their Homes

According to this New York Times article, Homeowners Walking Away, a study produced by the Financial Trust Index (a financial and economic research group formed by the Kellogg School of Management at Northwestern University and The University of Chicago Booth School of Business) states that more than 25% of foreclosures are actually strategic defaults where the homeowners walk away from their homes and mortgages even though they can afford to pay their mortgages. The Press Release, When Homeowners Walk Away: New Research Reveals More than 25 Percent of Mortgage Loan Defaults are Strategic, and Study, Moral and Social Constraints to Strategic Default on Mortgages, show that while most homeowners generally believe that walking away from a home is immoral, many will still do it if their negative home equity situation reaches a certain threshold. According to the Press Release "17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house." Given that information and the fact that a Deutsche Bank report published this past summer (See my blog post on the subject - SCARY STUFF: About half of U.S. mortgages seen underwater by 2011) predicts that about 50% of all US mortgages will be underwater by 2011, it is highly probable that the foreclosure crisis could actually accelerate in the near future rather then settling down as several organizations have suggested. I predict that there will be record numbers of loan modifications, short sales and foreclosures over the next 3 years.

According to the Press Release "People under the age of 35 and over the age of 65 were less likely to say it was morally wrong to default compared to middle-aged respondents." I guess that younger people and older people view the strategic default decision more as a business decision than a moral one. There are in fact consequences of walking away from your home and mortgage including damaged credit, which will make it very difficult to borrow money in the future, get credit of any kind, obtain insurance (insurance companies frequently check credit as part of the insurance underwriting process) and even get a job (employers frequently check credit as part of the job application process). Another pitfall of the strategic default is that you are open to a potential deficiency judgment where the mortgage lender could pursue you for their losses not recouped by selling your foreclosed home. For these reasons, I highly recommend trying a short sale instead of a strategic default.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in 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 and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), 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 Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Over 6,600 Home Foreclosure Filings Per Day

Over 6,600 Home Foreclosure Filings Per Day

According to this REUTERS article, Foreclosures mark pace of enduring U.S. housing crisis, in the US there is a foreclosure every 13 seconds which translates into "more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon."

According to the article, "the country's worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment. In congressional testimony last month Michael Barr, the Treasury Department's assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years."

The article references a September 2009 report from a FL foreclosure task force as finding that people are now defaulting on their mortgages for different reasons. The report states "People are no longer defaulting simply because of a change in the payment structure of their loan. They are defaulting because of lost jobs or reduced hours or pay."

According to the article, "A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890. But nearly half of recent sales have been attributed to foreclosures or "short sales" at bargain-basement prices. Even as the U.S. economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise. And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide. The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year. That spillover effect from foreclosures is one reason why Celia Chen of Moody's Economy.com says nationwide home prices won't regain the peak levels they reached in 2006 until 2020. In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted."

The article quotes Celia Chen of Moody's as saying "The default rates, the delinquency rates, are still rising. Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase. Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said. Prices there are still off about 50 percent from the peak they hit 15 years ago."

According to the article, the chief economist for the Mortgage Bankers Association, Jay Brinkmann, thought that foreclosures would peak in the second half of 2010. The problem is that this somewhat rosy prediction is based on unemployment falling in 2010 after reaching a peak "barely in double digits by the middle of next year." As we already know, the US unemployment rate reached 9.8% in September 2009 and show no signs of going down anytime soon.

I think this article provides even more evidence that the US real estate/housing short sale and foreclosure crisis is not going to end anytime soon. As more people lose their jobs, short sales and foreclosures will increase for the next several years since it will take until at least 2011 before the unemployment starts to go back down and even then it will take until at least 2012 or 2013 before the US unemployment reaches a level where people can afford to pay their mortgages. The net effect of all this will be that US real estate and housing prices will continue to decline for the next several years leaving more homeowners underwater.

If you are a homeowner in Middle Tennessee who is unemployed, have seen your income decline, has been turned down for a loan forbearance or loan modification and your home is worth less than your mortgage balance, please contact me to discuss selling your home via a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR. I serve real estate owners, homeowners and investment property owners in 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 and Belle Meade TN.

If you need to sell your home fast via a short sale you can my request help on my website at Get Help and Assistance from a Middle TN Short Sale and Foreclosure Expert and REALTOR.

Unemployment Rate Increases to 9.8% as Jobless Claims Come In Higher Than Expected

According to this New York Times article, Jobless Report Is Worse Than Expected; Rate Rises to 9.8%, the "American economy lost 263,000 jobs in September 2009, which was a lot more than was expected. As a result, the unemployment rate rose to 9.8%. This reduces the chances of the job market recovering by the end of 2009.

The US Labor Department raised concerns over huge government deficits coupled with high unemployment. The article stated "The numbers could intensify pressure on Congress to provide additional unemployment benefits and extend some programs that are set to expire toward the end of the year, such as tax credit for first-time homebuyers and health-insurance subsidies for people who lose their jobs."

According to the article, the government's stimulus efforts are not working to provide lasting employment. As an example, the article noted that state and local governments cut 47,000 jobs and auto dealerships (in the post "Cash for Clunkers" world) cut 7,100 jobs in September 2009. Also, the number of hours worked flattened and overtime hours declined in many industries. The article stated "while many businesses are making money again and seeing new orders trickle in, most are not ready to hire back the workers, even part-time. To economists, that suggests that unemployment could remain at historically high levels through next year, if not longer."

According to ean Baker, co-director of the Center for Economic and Policy Research, "People have been celebrating that we’re through the financial crisis, but the underlying issues are all still there. We’ve lost trillions of dollars in housing wealth, and consumption’s going to be weak. It’s not the ’30s, but there’s really nothing to boost the economy."

According to Andrew Stettner, deputy director of the National Employment Law Project, "This is still severe. It's not going to be turning around as fast as people want."

According to the article, there is a good chance that "other economic measures are beginning to waver, signaling that the initial phase of the recovery — a sharp rebound from a deep bottom — may be giving way to a long grind higher, marked by uncertainty and pain for many."

As I have been saying for quite some time now, this is only going to get worse. The problem was caused by too much debt. Now the economy needs to recede back down to a sustainable level not based on the high level of debt. The same goes for real estate - prices need to come down. All of this is going to result in more mortgage delinquencies, short sales and foreclosures.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage and your home is worth less than the amount(s) you owe, please contact me to discuss selling your home via a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR.

• Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
• Williamson County Tennessee: Brentwood TN and Franklin TN
• Davidson County Tennessee: Nashville TN and Belle Meade TN

You can find out more information about me via my website JimTheRealEstateExpert.com and my Active Rain profile Jim McCormack's Active Rain Profile - Short Sale REALTOR and Real Estate Expert.

Could Tighter Loan Underwriting Standards Hurt the Housing Recovery?

According to this RISMEDIA article, Credit Woes to Threaten Housing Recovery?, "Nearly two-thirds of single-family home builders are reporting a severe lack of credit for housing production, threatening the fragile housing recovery before it has time to take hold, according to a new builder survey of acquisition, development and construction (AD&C) financing conducted by the National Association of Home Builders (NAHB)."

The article quotes NAHB Chairman Joe Robson, a home builder from Tulsa OK, as saying "Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans. Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.  There can be no meaningful economic recovery until the flow of credit is restored to housing."  (My thoughts: Since when has housing been a legitimate driver of the economy for any extended period of time?  How can over priced asset prices such as housing create long term jobs?)

According to the article, the most recent NAHB survey of AD&C financing conditions, showed that some 63% of builders thought that the "availability of credit for single-family construction loans worsened in the second quarter of 2009."

The article states that home builders reporting worsening credit conditions cited the following reasons for the decline in lending:

• 80% said that lenders are lowering the allowable loan-to-value ratios.
• 76% reported that lenders are not making new loans."
• "75% stated that lenders are reducing the amount they are willing to lend"
• 62% said that lenders are requiring personal guarantees or collateral not related to the project.

According to the survey "Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better."

The article notes that lenders, as an explanation for the reduced lending activity, have told home builders that banking regulators are forcing them to tighten lending standards.  Federal regulators, on the other hand, say that they have not restricted lenders from making more loans.

The article states that the "NAHB believes that regulators and lenders should provide leeway to residential construction borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance on loans to give builders time to complete and sell their inventory."

I have to say that I have had enough of this nonsense.  We do not need more credit to help a housing market that has imploded as a result of too much credit.  I do have a serious problem with lenders due to their taking of taxpayer bailout monies and their grossly incompetent handling of short sales and foreclosures, but I do not blame them for reducing their loan activities or tightening their credit standards in the face of rising unemployment and increasing loan delinquencies.  It appears that the NAHB is doing nothing but advocating something that will help home builders sell their over priced homes to naive home buyers - all at tax payer expense as these loans go bad and the federal government steps in to continue to bail out the lenders that made these loans when the financially strapped home buyers need to short sell their homes and/or fall into foreclosure.

Therefore, the answer to the blog post title question is "No" for the following 2 reasons.

1. There is no actual housing recovery. Housing prices continue to fall and foreclosures continue to increase.  Where is there is more than average government intervention, such as CA with their $10,000 new construction home purchase tax credit, there has a been a slight bump in prices that will only get worse when that government intervention is stopped.
2. Tighter housing credit will actually the housing market in the long run due to weeding out financially unstable buyers. Long term housing market stability is the most important thing now.

Given the absurdly high levels of new construction still going on and available for purchase in Middle Tennessee (Rutherford County: Murfreesboro TN, Smyrna TN and La Vergne TN) the housing market here will continue to decline for years to come as there will be more builder bankruptcies, short sales and foreclosures in the Middle TN market.

Experts: More Rough Times Ahead for U.S. Economy

According to this RISMEDIA article, More Rough Times Ahead for U.S. Economy, despite Recent Improvements, several prominent experts in real estate and the economy who attended a recent forum at the Nixon Presidential Library said that despite recent signs of improvement more rough times are ahead for the U.S. economy. The event was organized and moderated by real estate analyst and investor Bruce Norris of The Norris Group in Riverside CA. the event included experts from the California Building Industry Association, the National Association of Realtors, the Mortgage Bankers Association, RealtyTrac, The Appraisal Institute and the National Auctioneers Association.

The RISMEDIA article quotes Christopher Thornberg of Beacon Economics regarding increases in durable goods orders, exports and auto sales as saying "You look at the numbers and everything points to the fact that we not only have bottomed, but things seem to be improving. When you think about the problems we’ve been through and what government has done, in many ways, they have, in fact, stabilized the economy. But you know what? They haven’t actually solved the underlying problems in the economy. The second half of 2010 will be very weak. 2011 will be very grim." According to the article, Thornberg cited real estate as a case in point. The article states that while home sales are up in some areas of the country, 6-7% of residential mortgages across the US are now 60 to 90 days delinquent. According to the aritcle, in California 250,000 mortgages are 60 to 90 days late. Thornberg believed that more economic trouble is coming soon due to rising unemployment and additional waves of foreclosures. If you remember my past blog posts I have been saying this for months (i.s. the coming foreclosures of Option ARM's).

The article noted the following thoughts and comments of the forum panelists:

• All of the panelists agreed that the economy will turn the corner in 2-3 years, but several panelists thought that things would get worse before improving.
• John Young, vice president of the California Building Industry Association, noted that new housing construction starts are at their lowest levels since the early 1950s and that new home sales are being hurt by appraisals coming in lower than the contract sale prices.
• Rick Sharga, senior vice president of RealtyTrac, a leading online marketplaces for foreclosures, noted the nation has had 43 consecutive months of foreclosures.  He said "We’re dealing with foreclosure activity that is six times what it would be in a normal market."  He also said that the legal and legislative efforts aimed at helping consumers modify the terms of their loans “merely delay the inevitable" given that modified loan terms will not help people who lose their jobs.  Sharga said he sees another big wave of foreclosures hitting the market next year as a result of rising unemployment rates, which are expected to peak during the first quarter of 2010, and the resetting of adjustable rate mortgages to higher rates.  Sharga also said that the real estate market is being hurt by a "shadow inventory" of 400,000 to 500,000 homes, which have been taken foreclosed and taken back by lenders, but have not been put back on the market for resale.  I have been saying that the number of REO's far exceeds the number being offered for sale for a while now.  When the Option ARM's start to reset this is going to break the proverbial flood gates wide open.

Of course there was the normal refrain of from a former president of the National Association of REALTORS who wants Congress to expand the home purchase tax credit to $15,000 for all home buyers.  Per my previous blog posts I think this is a bad idea because it will artificially inflate home prices resulting in more bubble bursting when the tax credits are finally stopped.

The forum organizer, Bruce Norris, recommended that Congress take the following actions to help the real estate market:

1. "Increase the number of loans made available to well capitalized investors: Expand Fannie and Freddie loan programs from a maximum of 10 loans per investor to an unlimited number of loans for qualified investors."
2. "Make the 203K FHA loan program available to investors: A 203K loan allows a property needing work to be purchased “as is,” but included in the loan amount is money for repairs. The loan funds both the purchase and rehab of the property. Investors need this loan now, but this loan is currently only available to owner occupants. FHA previously made this loan available to investors, but stopped the practice in 1996 when HUD ran out of lender owned, fixer uppers. Banks could solve the vacant house problem by giving investors back the 203K loan program."
3. "Eliminate the 90-day waiting period before a repaired property can be sold to a buyer using an FHA loan: Investors who purchase fixer uppers can often completely repair the property in a matter of weeks. But the current law prohibits investors from reselling the property within 90 days. The assumption is that fraud must be taking place if a property is resold within 90 days. It’s ridiculous to assume that every investor who purchases a property, improves and resells it is committing fraud. All this policy does is increase investors’ costs of purchasing and rehabbing vacant homes.
4. Allow loans to be taken over by credit-qualified new buyers with no down payment. Through this process, which was successfully used in the 1980s, new buyers simply step in and take over the loan payments. The only stipulation is that the loan has to be made current at the close of escrow. The U.S. currently has about one million owners who will not be capable of keeping their homes without a huge discount on the principle balance. Many of these properties have fixed rates at very favorable rates. Allowing willing and capable buyers to come in and take over these loans would help contain the spread of foreclosures across the country.

I agree with Mr. Norris' first 3 points, but I fail to see how allowing delinquent loans to be "taken over by credit-qualified new buyers with no down payment" will help the market when the real problem is that the loan balances exceed property values.

Thornberg, thought that it is "not realistic to assume that our nation’s economic problems will be solved by increased regulation or by presidential action. The economy simply needs some time to heal itself.  I have tremendous faith in the U.S. economy rebounding again in the future.  When we come out of this in two or three years, we’re going to have cheap housing and a weak dollar, which will be good for exports."

I agree with Mr. Thornberg in that cheap housing is good for the economy. The problem is that the Obama Administration is doing so much to artificially prop up housing values.  Why would they do this?  The answer is that the Obama Administration and their Democrat friends are bailing out their Wall Street and banking buddies such as Fannie Mae, Freddie Mac, AIG and Goldman Sachs.  Don't believe me?  Go find out who the largest campaign contribution recipients from Fannie Mae, Freddie Mac and AIG (hint: Barney Frank, Christopher Dodd and Barack Hussein Obama).

In my market in Middle Tennessee (Rutherford Couny TN in particular) I believe that the effect of all this will be worse than average due to higher than average unemployment rates and foreclosures.  Housing prices in Middle Tennessee will continue to fall well into 2012.

Effects of a Loan Modification, Short Sale, Foreclosure, Bankruptcy and Walking Away/Doing Nothing on Credit Scores

Effects of a Loan Modification, Short Sale, Foreclosure, Bankruptcy and Walking Away/Doing Nothing on Your Credit Score

There seems to be a lot of conflicting information out there regarding the negative effects of a Loan Modification, Short Sale, Foreclosure, Bankruptcy and Walking Away/Doing Nothing on a person's credit score. I would like to try to clear some of that confusion up.

According to this Los Angeles Times article, Mortgage problems are walloping Americans' credit scores, loan modifications, short sales, foreclosures, bankruptcies and walking away/doing nothing effect your credit score differently. Below is a brief summary of the different options.

• Loan Modification Type 1 - This Loan Modification type rolls late payments and penalties into the principal debt owed. According to the LA Times article, this type of loan modification may modestly increase your credit score.
• Loan Modification Type 2 - This Loan Modification type is a refinancing of underwater (i.e. negative equity) mortgage(s). This is what is offered under the Obama administration's Making Home Affordable Program through government controlled Fannie and Freddie Mac. According to the LA Times article, this type of Loan Modification "may have little or no negative effect on scores, even though the homeowners might have been tottering on the edge of serious delinquency before refinancing."
• Short Sale - A short sale is a sale of a property where the net sale proceeds are not sufficient to pay off the mortgage balance(s) and there is no party willing or able to make up the shortage. According to the LA Times article, a short sale may lower your credit score by 120-130 points. I have heard from other people that a short sale lowers a person's credit score by 80-100 points. For sake of simplicity, let's say that a short sale will drop your credit score by about 100 points on average (This does not include the negative effects of any missed mortgage payments. You do not need to miss any mortgage payments in order to successfully complete a short sale). While this seems bad (it certainly is not good), it is much better than foreclosure, or doing nothing. In fact, according Question 7, "If a borrower has completed a short sale and was never delinquent on that mortgage and is now attempting to purchase a new primary residence, will Fannie Mae purchase the loan?", in this this Fannie Mae publication, Announcement 08-16: Bankruptcy, Foreclosure, and Conversion of Principal Residence Policy Changes; and Revised Property Value Representation and Warranty Requirements, "If the borrower is purchasing a new property and the previous mortgage history complies with our excessive prior mortgage delinquency policy and does not have one or more 60-, 90-, 120-, or 150-day delinquencies reported within the 12 months prior to the credit report date, the loan is eligible for delivery to Fannie Mae, provided the lender or servicer who completed the short sale has not entered into any agreement that obligates the borrower to repay any amounts associated with the short sale, including a deficiency judgment." In other words, you can short sell your existing home and immediately buy another home as long you did not have a 60 day or more delinquency and your short sale lender did not require you to pay the shortage (normal loan underwriting criteria applies). This publication clarifies the previous Fannie Mae publication, Announcement 08-16.
• Foreclosure - Homeowners that allow their home to go to full foreclosure (i.e. be auctioned off by the lender and/or become a bank owned property) should expect their credit scores to decline by 140 to 150 points plus negative marks on their credit bureau files for as long as seven years. Having a foreclosure on your credit report will also make it much more difficult to buy a home. Fannie Mae requires foreclosed home buyers to wait at least 5 years before buying another home and even then Fannie Mae will require larger down payments. Freddie Mac generally requires a waiting period of 7 years. The FHA currently has a waiting period of 3 years, but is expected to increase that waiting requirement.
• Bankruptcy - The LA Times article states "People who file for bankruptcy protection covering all their debts (mortgage, credit cards, auto loans, etc.) will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers' credit bureau files for 10 years." Having a bankruptcy on your credit report will make it very difficult to buy another home. Fannie Mae requires that people who file a non-Chapter 13 bankruptcy wait a minimum of 4 years from dismissal or discharge before obtaining a new home loan. For Chapter 13 bankruptcy, the waiting requirement is 2 years from discharge and 4 years from dismissal.
• Walking Away/Doing Nothing - according to the LA Times article the "strategic default" has become common in large foreclosure laden markets such as California (and Florida, Nevada and Arizona). Homeowners who choose this option should expect the same consequences as a Foreclosure (described above).

The LA Times article goes on to state that Americans overall credit scores have declined significantly over the last couple of years. The article refers to the Vantage credit score, the main competitor to the well known FICO credit score, which "rates borrowers on a scale range of 501 (subprime, the highest risk) to 990 (super-prime, the lowest risk). Unlike Fair Isaac Corp.'s FICO scoring system, whose scores can vary by 50 to 100 points based on which bureau supplied the underlying credit data, Vantage scores are about the same for each consumer."

Regarding the negative effects of this financial mess on people's credit scores, the article states "For example, roughly 36.6 million of the 213 million consumers tracked by the three national credit bureaus in the first quarter of 2008 had Vantage scores above 900 -- the super-prime credit rung. That select group represented 17.2% of the country's consumers.But by the end of the second quarter of this year, just 15.4% -- 33.3 million out of 216.9 million individuals' files -- were left among the elite. By credit industry standards, that's huge. More Americans' scores are slipping into the worst credit category as well. In the third quarter of 2006, 34.4 million consumers were in the lowest segment -- 16.6% of 206.9 million individuals. But by the second quarter of this year, 18.3% of all files were in that category -- 39.8 million consumers out of 216.9 million. Most of these changes -- fewer people with excellent credit, more people in the lowest brackets -- have been caused by late payments on home mortgages, serious delinquencies, short sales and foreclosures, according to VantageScore researchers."

The article does offer a glimmer of good news - the same information I have been saying for months. That is "the bottom-line good news about scores is that homeowners facing financial stress can experience minimal dings to their credit if they contact their loan servicer or lender early in the game -- when they first discover that they may have trouble making their monthly payments -- and take the first steps toward a loan modification or refinancing." In other words, doing nothing is the worst thing you can do. The article cautions financially distressed homeowners not to "wait and fall several payments behind before seeking a modification". The article quotes Barrett Burns, a former lender and now chief executive of VantageScore, as saying "Start that conversation early. You can lose 240 points on your score" and damage your ability to obtain credit for years.

Based on the above, if you are a home owner who is experiencing difficult financial times and cannot afford to pay your mortgage, you should try to get a loan modification first. If a loan modification is not approved, or you cannot pay your mortgage even after a loan modification, then a short sale is your next best option.

Due to the declines in people's credit scores as described above, the large number of homeowners in financial distress (due to a loss of income, unemployment, etc.), the large number of homeowners underwater (see my previous blog post, SCARY STUFF: About half of U.S. mortgages seen underwater by 2011), the relative attractiveness of short sales and the large numbers of homeowners who do nothing/walk away (this is a terrible decision) there will be a lot of short sales and foreclosures over the next several years.

If you are a homeowner who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth you should contact a real estate and/or bankruptcy attorney to discuss your legal options. You should also contact your mortgage company to inquire about a loan modification. If you a homeowner in Middle Tennessee and would like help and assistance with a loan modification please contact me for free no obligation assistance. If a loan modification will not work for you, or is not granted by your mortgage company, I can help you with a short sale of your property. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in 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 and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), 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 Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Moody's Puts Us in a Bad Mood: House Prices Won’t Return to Peak Until 2020

According to this HousingWire.com article, House Prices Won’t Return to Peak Until 2020: Moody’s Analyst, a Moody’s Economy.com report predicts that "at least another decade will pass before housing prices return to peak 2006 levels." For those of you who have been following my blog you already know that I have been saying this for months now. In fact I have been saying that it will be at least 10 years before housing prices return to their 2005-2006 peak levels. The article quotes the Moody's report, written by Moody's Analyst Celia Chen, as stating "The correction will be not only deep but also lengthy. "The national price level will not regain its 2006 high until 2020, a peak-to-peak housing cycle of 14 years."

Despite the 2020 projection being on the low end of my estimate (i.e. AT LEAST 10 years), this HousingWire.com article actually confirms what I have been saying since according to the HousingWire.com article, "the projection seems conservative in light of historic data."  The article states that the Moody's analyst wrote that after the Great Depression, housing prices took nearly 20 years to return to their previous peak. the report also shows that in Japan 15 years passed since their residential market lost half of its value and there are still no signs of a recovery.

The HousingWire.com further quotes the Moody's report as saying "housing prices will regain normalized rates of appreciation during the first five years of the recovery. But the decline in prices and the subsequent recovery vary by region to region. In some states, prices will decline 6% or less and recovery will come before 2014. Other areas that have experienced declines of more than 46% won’t get back to 2006 prices until 2023."

My prediction for Middle Tennessee is that the Middle TN housing market will not recover peak home values until 2023-2025.  This is due to the following characteristics of the Middle Tennessee housing market:

• The Middle TN housing market peaked much later than most areas of the country with a peak of late 2007/early 2008 instead of early to late 2006.
• Extreme overbuilding during that peak especially in the higher price ranges.  This supply balance will continue for many years since for some reason people are still building here.
• Tennessee has historically high rates of personal bankruptcy which will cause higher than average foreclosure and short sale rates.
• Tennessee has higher than average unemployment rates, which will also cause higher than average foreclosure and short sale rates.

My Thoughts on the "Doomed" Housing Market: Listen When "Dr. Doom" Speaks

According to this CNBC article, US Economy Facing 'Death by a Thousand Cuts': Roubini, Nouriel Roubini says "more banks will fail and residential real estate prices have more room to decline."  According to Roubini, the economy faces a real threat of a "double dip" recession due to the severely damaged financial system and a lack of consumer spending.  Roubini says "the securitization market is all but dead, the credit markets are still frozen and consumers will continue to save more rather than spend and boost growth."  He predicts that by the time this financial and economic crisis is all over the following will happen:

• More than 1,000 financial institutions could fail.
• Housing prices will likely to fall another 12 percent in the next year making the total decline approximately 40 percent since the market began its steep decline. This will result in nearly one half of all homeowners owing more on their mortgages than their houses are worth.

Regarding housing construction, Roubini states "The gap between supply and demand is so huge we could stop producing new homes for a year to get rid of all the inventory  This price adjustment, in my opinion, is going to continue for another year."

Regarding commercial real estate, he warns that regulators are repeating some of the same mistakes made during the financial crisis. He states "Allowing forbearance in the deeply troubled sector will mask underlying problems that will come back and bite the economy".

While I do have a BA degree with a major in Economics from an Ivy League University, I am not a professor or professional economist.  However, I have been saying much of the same for months now.  That is that housing prices are still too high and there is still too much new construction.  We do not need new construction reduced to such and such levels - we need all new spec construction to come to a halt for at least a year.  Of course, that will not happen.  Instead new homes will be built, housing will continue to decline, more short sales and foreclosures will occur and more bailouts will be doled out to foolish banks and lenders.  It's an endless cycle of disaster.

With respect to the Middle Tennessee real estate market:

• Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
• Williamson County Tennessee: Brentwood TN and Franklin TN
• Davidson County Tennessee: Nashville TN and Belle Meade TN

I have been saying since I moved here in September 2008 that the Middle Tennessee housing and commercial real estate market is significantly over built and that housing prices are still too high.  Since the peak of the real estate market in Middle Tennessee occurred in late 2007/early 2008 (i.e. 2 years later than most places) the market here will decline for a few more years.  Also, a large portion of the homes sold with 95-100% subprime and FHA financing which have high default rates so short sales and foreclosures will be high in Middle Tennessee.  Therefore, I predict that the Middle Tennessee real estate market will do worse than the US average over the next few years.

My Real Estate Market Thoughts of the Day

This post may be a bit of a ramble so I apologize for this in advance. I just had to get some things off my chest.


The last time the real estate market melted down (think late 80's/early 90's) it took 7 years for homes to regain their losses. This meltdown is far worse because it is not just due to real estate over development/over building. It was caused by debt. Plain and simple. That is why the folks in Washington cannot fix this problem - you cannot fix a problem caused by debt with more debt. It defies logic and reason. The facts are that even at their current reduced levels, home prices are still out of line with incomes when compared to historical trends. Therefore, contrary to NAR homes are not actually affordable (Side note: I really cannot stand the NAR Home Affordability Index. Since when did Realtors become used car salespeople hawking homes by pushing the monthly payment instead of the price of the home?).

The reason loan modifications will not work is that they do not address the core problem: mortgage balances are too high relative to the market value of the homes. Many homeowners are actually now underwater (i.e. mortgage balances exceed the value of their home). According to a recent Deutsche Bank report, by 2011 about 48% of all US mortgages will be underwater. Since being underwater is now the #1 statistical driver of defaults (not credit scores) you can bet on high foreclosure rates for years to come.

Since the entire economy was built on consumer spending, and that consumer spending was fueled by debt, and that debt is no longer available you can be sure that when things do actually turn around unemployment will still remain relatively high with a likely range of 6-8% as opposed to the 4-5% range we enjoyed a few years ago. Based on the persistent debt problem and the long term unemployment problem I just do not see how the real estate market will recover anytime soon.

This whole thing is sadly comical. You have nonsense from NAR and the mainstream media about how the real estate market is turning a corner and recovering yet foreclosures and unemployment keep increasing. The US real estate market has never recovered under such circumstances and this time will not be the exception. Almost every day I fell like screaming "STOP THE NONSENSE." If our policy makers would just let housing prices decline to their normal (historical) sustainable levels and get rid of the FHA loans, other low/no down loans, ARM loans and other artificial financing not only would this type of problem never happen again, but the social engineers in Washington would not have to worry about "affordable housing" since housing would in fact ALREADY BE AFFORDABLE. Sometimes the answer is just plain old common sense. I predict that values will continue to fall rapidly through 2011 (when the large wave of Option ARM foreclosures ends) and then continue to decline gradually until the foreclosure rate reduces to normal levels and the unemployment rate reduces back down to a more realistic 6-8% mentioned above. At that point real estate values will recover at the normal 4-7% per year.

Prime Mortgages Make Up One Third of Foreclosure Actions

According to this Forbes.com article, Prime Mortgages Are Failing, between April and June of 2009 13% of all homeowners in the United States were either behind on their mortgage payments, or in foreclosure. If that is not bad enough news, the article goes on to state that while subprime (sub prime) ARM loan defaults decreased, the decrease was offset by large a large increase in the number of delinquent prime mortgages (that is mortgages to the most credit worthy borrowers who actually invested down payments, had verifiable jobs and excellent credit). The article quotes Jay Brinkmann, chief economist of the Mortgage Bankers Association (MBA), as stating "Prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime (sub prime) adjustable-rate loans." According to the article, the MBA defines delinquencies as those between 30 and 90 days past due. Homeowners beyond 90 days past due, or in foreclosure, are identified as seriously delinquent. The article blames increasing unemployment and declining property values (think underwater homeowners) as the main causes of this huge increase in prime mortgage foreclosure starts. According to the article, California, Florida, Arizona and Nevada continue to make up the largest % of foreclosures, but that % has decreased from 46% in the 1st quarter of 2009 to 44% in the 2nd quarter of 2009. The article states that Florida is in particularly bad shape with 12% of mortgages in the process of foreclosure, and at least 22.8% are delinquent. Also, according to the article, there was a major jump in Federal Housing Authority (FHA) foreclosures.

Here is my synopsis of the real estate market based on the information above and other information.

• The most financially responsible borrowers (prime mortgagors) are hurting. Even large down payments are not enough to counter the huge price declines. More homeowners underwater = more foreclosures.
• Foreclosures are increasing in general. This will cause more price declines.
• While the "Fab 4" (California, Florida, Arizona and Nevada) are still the kingdoms of foreclosure and prices will surely continue to fall in those markets, the decrease in % of total foreclosures nationwide from 46% to 44% while overall foreclosures increased means that foreclosures in other states increased at a higher pace that the "Fab 4" states. This means prices will decline nearly everywhere.
• More distressed homeowners will cause more people to try to rent out their homes. Until prices decline to a point where monthly rents exceed total monthly housing payments prices will continue to decline. Rampant foreclosures will make sure prices actually head below this normal equilibrium.
• Government meddling (expanded FHA mortgages, tax credits, etc.) has not and will not work to save the real estate market. The market is correcting itself to sustainable levels. FHA mortgages are now failing at alarming rates. Tax payers will once again have to foot the bill for regulatory incompetence. It seems that very few people are stating the truth about the real estate market. That is that high housing prices are bad for people (especially lower income people) and high commercial real estate prices are bad for business, which is in turn bad for job growth. Also, real estate has never (until the last few years) been the driver of the economic bus. It has been the passenger, meaning that economic growth (and the resultant business, job and income growth) caused housing prices to increase and new construction to increase. Not the other way around. Any attempt to work in reverse logic = insanity.

Please be clear about my opinion. "The worst is yet to come." I have been saying this since early 2006 and I see no reason to change my outlook on the housing and commercial real estate markets.

TransUnion.com: Mortgage Loan Delinquency Rates Rise

According to this TransUnion News Release, TransUnion.com: Mortgage Loan Delinquency Rates Rise - But Pace Is Slowing, mortgage delinquencies (the % of borrowers that are 60 or more days past due) increased for the 10th straight quarter reaching an all-time high national average of 5.81% for the 2nd quarter of 2009, which is an 11.3% increase over the 1st quarter's national average of 5.22%. The news release goes on to say that the "good news" is that this increase is less than the almost 16% that occurred from the 4th quarter of 2009 to the 1st quarter of 2009. Of course the news release goes on to state that year over year mortgage loan delinquencies increased a staggering 65%.

The Analysis section of the release reads "In its first quarter analysis, TransUnion reported a potential positive sign in mortgage delinquency rate trends. For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency showed a decrease," said FJ Guarrera, vice president of TransUnion's financial services division. "Now, with the release of second quarter results, we see even more deceleration in mortgage delinquency, an indication that the mortgage market is beginning to stabilize." "There are several complementary economic statistics at the national level to support this guarded optimism, such as the increase in consumer confidence in the second quarter. As for the labor market, although unemployment had continued to rise through the second quarter, July figures for unemployment insurance were lower than expected. Furthermore, recent figures from the government show the unemployment rate actually dipping to 9.4 percent nationally in July. These encouraging economic signs, coupled with a decrease in the rate of mortgage delinquency growth, suggest that we may have seen the worst of the recession. This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," continued Guarrera.

The news release continues by stating that they project that the average mortgage loan delinquency rate will peak at just under 7% by the end of the year. The release goes on by stating However, due to a continued downward trend in housing prices throughout the year as well as high unemployment levels, TransUnion does not see national delinquency rates beginning to fall until the first half of 2010.

Frankly, I find TransUnion's rosy views comical. First, unemployment only fell to 9.4% in July due to nearly 500,000 being removed from the unemployment figures not because they found a job, but because they UNEMPLOYED TOO LONG! Also, there is no way that the mortgage loan delinquencies have turned a corner. With unemployment continuing to rise, increasing numbers of homeowners owing more than their homes are worth (i.e. underwater homeowners) and the wave of ARM mortgages coming due in May 2010 you can absolutely bank on increasing foreclosures and short sales. There is just no way around it. The bottom is something we have yet to see.

SCARY STUFF: About half of U.S. mortgages seen underwater by 2011

According to this Reuters article, About half of U.S. mortgages seen underwater by 2011, a Deutsche Bank report states that "the percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March (2009)." According to the Deutsche Bank report, home price declines will affect "conforming" or "prime" borrowers (i.e. those that put 20% down, had documentable income and good credit" the most. The report goes on to state that 41% of prime conforming loans will be underwater by the first quarter of 2011, up from 16% at the end of the first quarter 2009 and 46% percent of prime jumbo loans will be underwater, up from 29%. The report goes on to state that 69% of subprime loans, will be greater than the underlying property value in 2011 (up from 50%) and 89% of option adjustable-rate mortgages (option ARM's), which artificially reduced payments by allowing payments to be lower than the interest due resulting in increasing principal balances, will be underwater in 2011, up from 77%.
In June 2009 Deutsche Bank covered 100 U.S. metropolitan areas and forecast home prices would fall 14% through the 1st quarter of 2011 for a total drop of 41.7%.

The Deutsche Bank reports stated that the regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. The report added that Las Vegas and parts of Florida and California will see 90% or more of their loans underwater by 2011.
The Deutsche Bank analysts stated that "For many, the home has morphed from piggy bank to albatross."
The Reuters article states that "the drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough." (Translation: homeowners will walk away from their homes and give the keys back to the banks once they realize their homes will never be worth enough to pay off the debt.)

The above is more evidence that this housing market mess is far from over despite the nonsense you hear from the National Association of REALTORS (NAR) and the Obama Administration. There will be high numbers of foreclosures and short sales for years to come.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in 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 and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), 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 Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Great Blog Post: The Ridiculous Loan Modification Solution

According to this BrokerAgentSocial article, The Ridiculous Loan Modification Solution, Banks and Mortgage Lenders have no real incentive to offer struggling home owners a loan modification since a Barclay's study showed that "current loans receiving rate modifications will experience a 62% redefault rate and delinquent loans receiving rate modifications will experience an 83% redefault rate." The reasons that these loans will still go bad are simple:

1. The home owners were shaky from the beginning and so they are not the most financially responsible people to start with.
2. Their homes are worth far less than the their mortgage balances. Eventually these people realize that they will never "get even" and just give up by letting the go into foreclosure.

The result of all of this is that short sales are rely best solution for the lenders and the homeowners since it is statistically proven that loan modifications will not work. Regardless of what the all knowing Obama says, keeping people in their homes is not the answer to our real estate crisis. Letting the market hit bottom as soon as possible is.

Lenders More Open to Short Sales

According to this New York Times article, Lenders More Open to Short Sales, mortgage lenders are trying to make the short sale approval process faster and easier. Short sales are real estate sales where the sale price of the property is less than the mortgage balance(s). According to the article, short sales became more difficult to get approved as the credit crisis deepened since the 2nd mortgage holders were typically unwilling to accept a large enough loss to make the sale go through. Now, it appears, that the 2nd lenders are willing to accept 5 to 10 cents on the dollar in order to satisfy their debt. According to a representative of Bank of America, they are willing to accept 5% for their 2nd mortgages and they expect 2nd mortgage holders to accept the same when Bank of America is the 1st mortgage holder. The Treasury Department has announced that it will increase incentives to mortgage lenders to work out short sales, but declined to comment on the details of those incentives.

All this means that short sales will become more common. However, this is not really new news since they were going to increase anyway due to the declining real estate values and worsening unemployment, which will increase the number of mortgage delinquencies.

Obama Administration Expands Housing "Rescue Plan"

According to this BusinessWeek article, Obama administration expands housing plan, the Obama Administration is expanding the coverage of its previous $50 billion housing rescue plan in order to cover more distressed homeowners. The previous plan has helped 55,000 homeowners avoid foreclosure via loan refinances and payment modifications. This new expansion will only aid homeowners by making it easier to give their homes back to the banks, or complete a short sale. While these add ons are certainly needed it still does not address the problem of the banks having too many REO's, or losing money and becoming insolvent. Of course, in my previous blog posts I beat up the initial plan since it omitted investors and homeowners whose homes were worth far less than the mortgage amount. These remain a source of a lot of foreclosures. In short, this new plan will do little to nothing to stop the decline of the housing market.

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".