Foreclosure-Gate Unfolds
Just what the housing market needed, another crisis to deal with. We have already dealt with so many aspects of the housing crisis, from tighter credit to falling prices and foreclosures, it does not seem fair to pile another challenge into the equation. But it is what it is. It should not be surprising that, with so many foreclosures clogging the system, financial institutions and their vendors took shortcuts. The question is--how will this new challenge affect the housing market and the economy? First, we should make a few points clear. Those who don't make their payments will eventually have to leave their homes, whether it is sooner or later. Second, even if foreclosure sales are delayed, don't expect banks to flood the markets when the spigots open up again. Banks have been carefully regulating how much inventory reaches the markets and it would make sense that they will continue to do so.
The best case scenario is that some foreclosure sales are delayed for a few weeks. Not all banks have declared freezes and others have indicated that their paperwork and procedural reviews will not take long. The worst case scenario calls for longer delays due to systemic issues and actions by government agencies and even private lawsuits. Even a short hiatus will negatively affect real estate sales because REO sales are accounting for approximately 1/3 of the market. Weaker home sales will slow the economy further. This means that the Federal Reserve Board is more likely to take positive action to help the economy. We don't need the economy to be slower right now because employment gains will only come from economic growth. The effect of foreclosures will make the Holiday retail sales even more important with regard to economic growth. This could be an interesting month as we start out with the jobs report and preliminary growth estimates for last quarter and end with reports on how Holiday retail sales have kicked off.
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Affordability at "Record Highs"
A report from Beacon Economics said home affordability has reached "historic highs," with home prices down by 25 percent from their 2006 historical peak. The Beacon Economics Home Affordability Index reported August homes were at their most affordable level since data became available in 1969.
The estimate shows the cost of home ownership (interest plus principal payments after a 20 percent down payment) falling to 16.9 percent from 17.1 percent in July. Overall, the Index has remained below 20 percent for the past 21 months. "Home affordability has reached an historic high," says Beacon Economics Principal Christopher Thornberg. "Nationwide, prices are down approximately 25 percent from their peak, and financing rates are at all-time lows." Thornburg indicated the high level of affordability is likely to drive demand and reduce the stock of excess inventory, ultimately resulting in the need for new housing, a rise in prices and a pickup in new construction."While prices may fluctuate modestly over the next several months, we believe the worst of the housing crisis is behind us," said Beacon Economics Research Manager Jordan Levine.
Source: Mortgage Bankers Association
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Foreign Nationals Scoop Up Deals
Foreign investors are swarming Miami, buying up property and paying with cash. Individual investors from Argentina, Canada, Columbia, France, Israel, Italy, Norway, and Venezuela are investing in what they see as a fire sale of U.S. property. "I have never seen such a high concentration of foreign nationals acquiring real estate," says Peter Zalewski, who has been in real estate for 15 years and founded Condo Vultures, a consulting and brokerage firm. "Eighty percent of the sales in downtown Miami are foreign-based. This is unprecedented."
Practitioners say they are also seeing similar sales in Seattle, Washington D.C., New York, Las Vegas, Los Angeles, and San Francisco. To meet demand, real estate brokers are hiring sales associates who can speak multiple languages and are investing in overseas marketing tools.
Source: Associated Press
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Eric Baitinger
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