May 8, 2011
Keeping Watch on the Mortgage Meltdown
It's official. Home prices have double dipped nationwide, now lower than their March 2009 trough, according to a
new report from Clear Capital.
It was inevitable, and it was predicted (by me for sure) that a surge in sales of foreclosed properties and a big push
by banks to facilitate short sales would force home prices down dramatically.
Sales of bank-owned (REO) properties hit 34.5 percent of the market, according to the survey, resulting in a national
price drop of 4.9 percent quarterly and 5 percent year-over-year. National home prices have fallen 11.5 percent in the
past nine months, a rate not seen since 2008. Add short sales, where the bank allows the borrower to sell for less
than the value of the mortgage, and prices have nowhere to go but down.
"With more than one-third of national home sales being REO (bank owned), market prices are being weighed down
as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales," says
Clear Capital's Alex Villacorta.
You don't have to tell Los Angeles Realtor Bill Kerbox any of this. LA prices had been improving, and LA is still one of
the nation's best performing metro markets right now. Recently, however, prices took a turn, now down 2.4 percent
quarter to quarter thanks to 34 percent REO saturation.
"We have definitely seen a number of both short sales and foreclosed properties along the West Side here, and they
have definitely taken a hit," bemoans Kerbox. "It hurts to have a very low comp pop up next to your beautiful new
While the usual subprime mortgage suspects, like California, Arizona, Florida and Nevada used to rule the foreclosure
roost and still have high volumes of distressed properties, the mid-west is seeing a surge in REOs now, thanks to the
plain old recession. 40 percent of the Chicago market is foreclosures, 43 percent in Cleveland and 51 percent in
Minneapolis. Home prices fell 8.7 percent in the Mid-West during the past three months compared to the previous
While the foreclosure crisis is abating on the front end, with fewer loans going newly delinquent, the pipeline of
seriously delinquent loans is enormous. Banks are now ramping up the foreclosure process after the "robo-signing"
paperwork scandal, but at their current pace it would take about four years to process all the bad loans through
foreclosure and even longer to sell those homes out on the open market.
While buyer demand is rising, thanks to a slowly improving jobs picture, mortgage availability is still very difficult for
the low to middle-income borrower, and falling prices don't help already weak consumer confidence in the housing
market. If prices continue to fall further, which they likely will in the short term, the number of so-called "underwater"
borrowers, those with negative equity, will rise even higher, which could in turn result in more loan delinquencies.
Nationwide more than a quarter of all homeowners with a mortgage are in a negative equity position, but in some
markets, that number is far higher. 46 percent of Massachusetts borrowers are underwater, according to LendingTree.
The last time home prices fell at this rate, three years ago, they were then boosted by government stimulus in the
form of a home buyer tax credit. "A note of caution to those looking for a strong end to 2011: The last time no
incentives were in place and distressed inventories were this high, home prices fell sharply," warns Villacorta.
Disclaimer: All information on this site may be shared or duplicated for your use.
RealEstateSecretsToday.com does not perform Forensic Loan Audits, Securitization Audits, Loan Modifications, Principal Reduction, Owner
Financing or Short Sales.