New Wave of Foreclosures

There are many people out there that believe the economy has finally turned and we are about to really begin turning around our economy. In short things are getting better, and our economy is recovering. A large part of this recovery is the housing market is stabilizing, and a recent survey completed by Fannie Mae suggests that housing prices are reaching their lows, and 70% of people still believe a home is a safe investment. To top it off you turn on any news channel except Fox and you will hear reporters discussing the recovery and our strong stock market and solid company earnings in my industries.

Yet despite this positive spin, Americans are still struggling to find adequate employment - with unemployment at 9.8%, the question is how can we be recoverying without creating jobs? Couple this with the new program the White House has announced that is suppose to help people currently underwater and unemployed with their housing obligations. This spits in the face of reporters claiming recovery because it essentially tells us that the White House is deeply concerned about unemployed citizens meeting their housing obligations, so much so they are going to subsidize these people in the interim.

Hmmmmm.....

Now let's digress a moment and consider the real estate inventory already on the bank books. It is well known the banks have not listed for sale on the market all the homes foreclosed on in the last couple years. The simple reason for this is because they did not want to flood the market - too much supply without any demand would have compromised the value of these homes and ultimately the underlaying value of the collateral they have supporting performing loans, so they were reuired to slowing list these properties for sale as bank owned homes. This coupled with the suffering economy, job losses, etc... more people have walked away from or been foreclosed on which means more inventory.

Point in fact banks currently have substantial inventory on their books. This inventory is a liability costing them in their bottom line, after all banks are not in the business of holding real estate. These foreclosures have essentially caused a backlog which will lead to another influx of bank owned real estae on the market. How will this effect current home prices? Because these are considered bargain buys, this evolution in housing cannot help our market, although it does present some significant opportunities for people in a position to pick up additional properties.

It seems Fannie and Freddie are preparing for this. Recently we have seen guideline changes allowing for up to 10 financed properties. This is a significant rise from the previous level of 4 which will allow people that previously could not secure financing to be able to.

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Now let's bring this full circle... our economy is recovering according to the News as stock prices rise and companies post solid profits, however real estate is still suffering as a new wave of foreclosures approaches, in addition the White House is deeply concerned about unemployment signified by their new program to help the unemployed stay in their homes. Add all this up - we are not recovering... we are in a state of flux with addition problems on their way (after all we have not even discussed commercial real estate defaults).

Although this is somewhat troubling news, let us keep in mind it is during times like these that real money can be made - after all, the goal of all investors is to buy low and sell high. Buying in this market is half that equation, selling high is simply a matter of allowing enough time to pass.