ON THE ROAD TO RECOVERY?
Every home owner or prospective home owner right now wants to know when the housing market will stabilize. While I can’t tell you exactly what will happen in the next few years, I can tell you the two factors that will most determine where we are headed.
1. Shadow Inventory: This is a new term in the lexicon of real estate jargon. This refers to the inventory of foreclosed homes banks possess that are not currently for sale. The housing bust came on so suddenly that banks did not have the staff, training, or knowledge to adequately deal with the large number of homes they were taking back. Over the past year, to give HAMP (Home Affordable Modification Program) a chance to keep home owners out of foreclosure and to reduce the cost of maintaining the condition of foreclosed properties, banks were delaying the foreclosed home liquidation process and hence stockpiled their inventories. This delay allowed delinquent borrowers to stay in their houses and also allowed banks to avoid asset value write-downs. Unfortunately, with HAMP running out of qualified borrowers, that trend is starting to reverse course. Bank balance sheets are beginning to balloon with REO (real estate owned) homes and the shadow inventory is being converted to actual inventory.
This is a negative for two reasons. First it implies more people are being put out of their home and onto the street and second, at some point, the distressed homes banks are adding to their balance sheets will need to be put back up for sale. Once the housing market starts to pick up recovery momentum, banks will begin to slowly liquidate their inventory of foreclosed properties. Hopefully they will do so in a manner that does not greatly disrupt local supply/demand and push prices even lower (which would hurt their own cause).
2. Unemployment: As the economy continues to stagger to its feet, the high number of people without jobs will directly dictate home sales. Interest rates at historic lows are great for people who have jobs, don’t have a house (or can afford to sell in today’s market), and investors. For everyone else, low rates do not help in qualifying for a loan if you don’t have a job. The other issue to consider is what happens to a “generation” of buyers who, because of a short sale or foreclosure, will not be able to purchase another home for 3-7 years. This is a huge segment of the future market place that will be hamstrung by poor credit. With a potential lack of purchasers for homes, inventories will bulge–driving prices down. Until more American’s are gainfully and confidently employed we will struggle to level out home prices.
These are the key indicators to watch as we all anxiously await stability and predictability in the housing market.
source: mortgagenewsdaily.com