Large housing inventories to be sold at deep discounts in 2011…and other stories

 

From recent HousingWire news and other sources: (all italics mine)

Foreclosure filings and completed foreclosures will reach record levels this year, after lenders exhaust alternatives such as mortgage modifications (which have been hugely unsuccessful)…Analysts expect increased losses to residential mortgage-backed securities, as a result, because large inventories of foreclosed homes will be sold at deep discounts…

DBRS projects delinquency trends to continue climbing this year, as negative home equity persists, home prices remain down, unemployment stays high, and many borrowers have trouble refinancing due to tightened underwriting standards.

Analysts said the number of REO properties could double over the next 12 months to 4 million from 2 million, and it will take at least one to two years to sell those homes, further hindering recovery.

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Interesting research from PEW Local Trends that goes into great detail about Strategic Defaults..

What will be surprising to many is the dramatic increase in the number of homeowners willing to walk away from their underwater home. Just 3 years ago when we started reporting on this phenomena similar studies were done that resulted in fewer than 10% of those surveyed deemed strategic defaulting as ‘acceptable’. Now, that number is approaching 40%…

What this will mean going forward is that homes that are not even on the banks radar for potential default/foreclosure will be going back to the bank in record numbers, increasing the already lofty numbers of expected bank-owned properties.

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The mortgage interest tax deduction is being lead to the gallows for a little meeting with the guillotine…better known as the Obama Administration.

The National Association of Realtors is the lone voice in the blood thirsty crowd calling for the tax deduction to live on…

Here are the two sides of the argument:
The Off With Its Head…end the deduction argument: Why should non homeowners owners subsidize homeowners? Why are we punishing people for renting? Why create system that motivates people to buy more home than they otherwise would have? Why should the government incentive people taking on a mortgage thus, debt. (Sounds noble, does it not?….).

The ‘Let it live’ crowd’s argument: Owners are more stable, move less..invest more in communities. Owners spend more on home improvements and the like..thus, putting more money back into their communities.

I can tell you this for certain…regardless if you are red or blue…if the mortgage interest tax deduction, that will be quite a few nails in the housing coffin.

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Looming changes for Fannie and Freddie. The White House outlined last Friday its plans to begin shrinking their support of both of the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. While the process could take several years, the effects will be felt in coming months.

Everything about obtaining a mortgage loan is about to change. Vastly fewer people will have the financial ability to obtain a loan.

It seems that the current administration is attempting to move us away from a homeownership society to a generation of renters…however, if the tax benefits of owning a primary residence are removed, do you think that the tax benefits of investor-owned properties will be left intact? If there are greatly reduced incentives (or even restrictive penalties i.e.. rent control) for investors, whom do you think will own all of the properties that people will need to rent?…It will be local/state or federal agencies that become the new landlords…watch out for this!

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I post these stories and opinions not to alarm but to inform…there is so much ‘spin’ out there from the various interest groups that it is hard to know which way is up or down.

For certain individuals and investors, in very specific circumstances…now is a great time to buy. Conversely, with what I think is going to be happening in the next few years to the housing market, now is also a good time to sell…it is hard to see, but will be clear in retrospect.