GSIG LLC
Studies keep showing what we have known for a long time: fighting foreclosures is a pointless and a counter-productive use of resources.
New studies by John Burns Real Estate Consulting and Standard & Poor’s Financial Services deduce that loan modification will only delay the inevitable, resulting in future foreclosures.
The credit bubble allowed home-buyers to buy houses they couldn’t afford and consequently, get in over their heads. It was game over for many of these buyers once prices came down and the refinancing pipeline came to a halt.
Currently, there are around 7.7 million households in some stage of pre-default delinquency.
The latest estimates are for another 5 million delinquent mortgages to go through foreclosure or short sale over the next few years. These 5 million homes will then come out of the shadows and enter the real estate inventory and whatever reluctant progress that has been made in clearing out some of the excess housing inventory will suffer a huge set back.
The WSJ reports that the problem is “largely concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas.”
The S&P study also says that the “overhang” of foreclosed homes expected to go on the market will result in lower home prices.
Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers will eventually re-default.”
When it comes to foreclosures, there is a silver lining — it helps drive over-priced homes towards normal levels, increases sales, and removes the prior excesses from the market.
In conclusion, foreclosures are not pretty or pain free, but they are a necessary part of recovering from a bubble.
No comments:
Post a Comment