Posted by Jonathan J. Miller -Monday, January 23, 2012, 8:55 AM Comments Off
Ok, at least it’s it’s Year of the Dragon, not the Year of the Rat but the Chinese New Year does bring to mind some other associations with housing in the post-credit crunch world.
Here are names I have associated with each year since the fall of Lehman and the impact on housing.
2008 (Rat) – Year of the return to reality. Appropriately named, the year notes the final punctuation mark on the credit boom unraveling and the fact that the entire world lost it’s mind.
2009 (Ox) – Year of the first time buyer. The first year after the September 2008 fall of Lehman Brothers that marked the beginning of a new credit environment as well as a new housing market. Mortgage rates fell to the floor and the Federal government introduced the first time homebuyer tax credit – later expanded to existing homeowners. For appraisers it was the “Year of the Appraisal Management Company” as the Cuomo/Fannie Mae agreement effectively prevented the residential appraisal industry from becoming a reliable and impartial benchmark provider.
2010 (Tiger) – Year of the short sale. Preceding the incoming flood of foreclosures, the banking industry understood that it was a lot cheaper to effect a short sale rather than go to foreclosure. Unfortunately they had no idea how to manage the process and many fell into foreclosure. Here’s some free advice to banks looking to cut losses on foreclosure activity: actually pick up the phone.
2011 (Rabbit) – Year of the foreign buyer/trophy property sale. The DC politically charged debt ceiling debate leading to the S&P downgrade of US debt and economic debt problems in Europe drove many foreign buyers to the US housing market as a safe haven. A byproduct of this trend was a surge in the sale of unique high end properties in the US. Think Candy Spelling and Sanford Weill. I had originally dubbed 2011 as “Year of the foreclosure” but the “robo-signing” scandal in late 2010 tempered servicer/lender plans of releasing foreclosures into the market until they were more confident they could prove ownership and the right to actually foreclosure (what a time we’re living in).
2012 (Dragon) – Year of the foreclosure/election year do-nothingness. Servicers/lenders will begin to ramp up the foreclosure process again as more time has passed for them to get their ducks in a row. I am doubtful there was enough time to do much of anything considering the millions of potential transactions but it’s likely to start this year and heavier than usual volume should last for at least 3 years. This is a good thing because we need to clear the market before claiming a housing recovery. We will likely see a surge in election year political promises as an attempt to help troubled homeowners such as a more streamlined shortsale process, an improved loan modification process and an expanded refinance policy, but judging from all feeble attempts so far and the stalemate in DC on economic policy and their stunning lack of understanding about what ail’s housing, we’ll probably get the status quo instead.
The next Chinese New Year will be named Year of the Snake. Uh, I’ve never liked snakes.
“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac. “The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages — particularly in states with a judicial foreclosure process.
“There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010.”
All the prognostications about declining foreclosures as some sort of sign of strength in a particular housing market were simply myopic. This announcement isn’t “new” news – its more about confirmation that more volume is coming.
Gotta love New York State – if there is one way to prolong the housing downturn, keep credit tight and depress prices, it’s government intervention to slow the process down:
The average foreclosure process in New York has increased 37 percent during the same time period, and New York properties foreclosed in the fourth quarter took an average of 1,019 days to complete the foreclosure process — the longest of any state.
Posted by Jonathan J. Miller -Monday, January 9, 2012, 6:00 AM 1 Comment
Ok, so I thought my son shooting a basket would be better than a boring graphic of the Fed – indulge me. I’ll say “the Fed took the ball drove and took a well executed shot.” Ok, back to the Fed’s sort of full court press…
From the FT: Finally, a regulatory body offers tangible realistic advice on housing to Washington policy makers:
Among the ideas is forming a national strategy to facilitate the conversion of foreclosed properties into rentals; allowing banks to rent their repossessed homes rather than forcing lenders to sell them; changing the compensation structure for mortgage servicers, companies that collect payments from borrowers and pursue foreclosures in the event of a default; creating a national online registry of liens to track ownership interests; and altering existing Obama administration policies to allow for more refinancings and mortgage restructurings.
The insight was provided to the Financial Services committees (who brought us Dodd-Frank) and while much of this has already been considered or is in the works, it’s presentation by the Fed all in one message helps bring clarity.
I like these ideas since they are foreclosure-centric and US housing doesn’t recover until we clear the market of excess foreclosure volume.
Here’s the Fed’s white paper - what jumped out at me came in the beginning with the fed identifying housing as a key economic problem:
a persistent excess supply of vacant homes on the market, many of which stem from foreclosures
a marked and potentially long-term downshift in the supply of mortgage credit
the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities.
I really like the rental idea for REO houses stuck in lender inventory. In many cases, lenders are forced to sell so they don’t fall below their capitalization requirements by the regulators. Now they would be able to rent the property out to get the cash flow going plus having an occupant helps protect the asset.
Here’s a crazy and too simplistic but-it-sounds-like-a-reasonable-foreclosure-failure-spiral:
Home sales are weak because credit is so tight
The rental market is strong because credit is tight – rents are rising.
Consumers have less disposable income to help the economy because rents are high.
As more rental supply becomes available from Fed recommendation, renting becomes more affordable.
More affordable rents delay increase of home sales.
Had a fun interview with Tom and Sara this morning on the always MUST watch/listen Bloomberg Surveillance. We talked housing, rentals, vacancy and inventory. An added bonus was the addition of Adam Davidson – co-founder and co-host of Planet Money... Read More