One of the great truisms of the housing crisis is that
the wave of foreclosures that hit the market from 2009-2011 will be followed soon
by an even greater wave that is just about to land with a thud and deliver a
death blow to the nascent housing market recovery. You can’t read an article about housing
without this “fact” accepted as received wisdom. I just this morning saw a bald man with dark
glasses on CNN repeating this as he gleefully predicted the impending collapse.
But businesses, such as banks, are run by people, and
people often display herd behavior. The
great rush from 2009-2011 to foreclose is now being followed by the “great hesitancy.” A recent multi-party series, “Bad Neighbor
Bankers “, by the south Florida-based Sun-Sentinel,,
epicenter of the real estate crisis, dealt with the emerging problem of banks
actually refusing to foreclose on properties, allowing them to sit and rot,
rather than deal with the headaches of actual ownership, such as taxes,
maintenance, homeowner association dues, legal liability and the like.
The Wall Street Journal also recently
reported that foreclosures continue to decline on a year-over-year basis.
There probably are several reasons for this trend,
including the recently $25 billion settlement the big banks signed with the
government, which includes provisions to help underwater borrowers and more
carefully document foreclosure paperwork.
But the biggest reason is simple economics
– foreclosing on millions of homes fast was a disaster for everyone involved,
both the banks and the unfortunate homeowners who got hustled out onto the
street, often trashing the property on the way out the door. With the hardest-hit markets such as south
Florida and Phoenix recovering, and investors complaining about an actual shortage of properties, expect this trend
to continue. Also, banks stopped making
stupid loans for home buyers four years ago, and tightened standards for
refinancing, so loan quality has improved substantially. The pool of borrowers
in trouble, while large, won’t get any larger.
My prediction: as measured on a year-over-year basis (i.e.,
May 2012 compared to May 2011, etc.; the only meaningful way to track the real
estate market, by the way) the national number of foreclosures will continuously
decline on a monthly basis for at least the next three years. Given how many analysts are predicting there
is another foreclosure shoe yet to drop, this will translate to yet one more
piece of good news for a healing market.
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