Everyone involved in the real estate business understands that unless and until the vast inventory of foreclosures is reduced to a manageable level the markets will be plagued by sluggishness. The volume of foreclosures available for sale has been historically high for years now, and that creates a drag on prices across the board.
Even brand new construction is suffering one its worst slumps in decades because there are aggressively priced foreclosure homes on the market that are almost brand new. That’s because building projects for many of today’s foreclosures were launched right before the mortgage and real estate bubble burst. Although it seems to some like that happened an eternity ago, the harshest impact was not felt until the end of 2008, and that is less than three years ago. Plus this particular real estate crisis was perhaps the worst in American history, so it is only natural that prices are not going to rebound as quickly as they do after a typical bear market.
But progress has been made, and that is reflected in the fact that the real estate market has become more stable over the past several months, and in some areas of the country prices have not only found a floor but have also started to recover some lost ground. California was by many measures the state that suffered the worst losses, for example, but now its real estate market is leading most of the nation in terms of finding traction and renewed confidence. All over the USA the average time on the market of listings has shrunk, and there has been a distinct slowdown in both foreclosure auctions as well as the mortgage payment defaults that lead to foreclosure.
Meanwhile, despite a slew of other economic problems, mortgage rates on safe and reliable 30-year fixed-rate mortgages recently fell to 4.12 percent. That is the lowest they have been in more than half a century, and lenders are also being more lenient than they were a couple of years about making home loans or doing refinancing. So those homeowners who have decided to stay in their homes can now entertain the idea of refinancing, even if their original loan carries the historically attractive rate of only six percent. Those who refinance a note worth $200,000, for example, can save about $250 a month and then apply that extra cash to needed savings, paying down their new mortgage, or doing valuable upgrades.
In addition to low loan rates, the Feds are also working to eliminate troublesome foreclosure inventories. Recently officials in Washington began pushing for a more robust version of the government’s Home Affordable Refinance Program, for instance. That program was launched to help curb the tide of foreclosures, but it also came with rather cumbersome restrictions regarding how much a property appraised for relative to the amount still owed on the mortgage. But officials now want to raise the existing loan-to-value restriction above 125 percent. That would allow many homeowners who are pretty deep underwater on their mortgage repayments to enter the program and take advantage of special loan modifications. Real estate economists predict that raising the loan-to-value ceiling could save American homeowners a total of at least $20 billion. That would, in turn, let more people stay in their homes and help to keep those properties off the foreclosure auction block.
Banks that have been reluctant to do so-called short sales have also begun to see the wisdom in accepting short sale offers instead of going straight to foreclosure. A short sale happens when a buyer offers to take the property off the lender’s hands in lieu of foreclosure, and because banks always lose a great deal of money on foreclosures short sales are usually good for everyone. The homeowner loses the home but doesn’t have to go into bankruptcy, and lenders are able to cut their losses. The buyer, meanwhile, gets a home or investment property at a great price.
Low rates, government initiatives, and more short sales are having an impact, and that should continue to show up in the data as well as in housing prices. Recent statistics show that there has been a 35 percent decline in foreclosures so far this year, for instance, when compared to just one year ago. That’s a significant improvement, and it happened during a challenging time for the economy and while mortgage interest rates were higher than they are today and short sales were scarce.
The residential housing market is not out of the woods yet by any means, but there are definitely reasons to be encouraged. Sometimes a little upward momentum is all it takes to help a recovering market turn the corner, and as more foreclosures get sold off at incredibly cheap mortgage rates that will definitely have a positive impact on the overall market.