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OPTOMISTIC ABOUT THE ECONOMY AND THE REAL ESTATE MARKET FOR THE NEAR FUTURE? THINK AGAIN!

REPORTS OF INCREASED BANKRUPTCY FILINGSreveal an interesting statistic. Not the number of bankruptcies filed. Not the number of folks filing chapter 13 to repay some of their debts. Many chapter 13 reorganization for wage-earners are filed by home owners who are facing foreclosure.

From Inman: "ABI projects that a continuing rise in unemployment, foreclosures rates and health care costs will lead to more than 1.4 million consumer bankruptcy filings in 2009, up from 1.1 million in 2008 and 801,840 in 2007" more. . . . . .

What these statistics mean to me is that there are another 1.4 million consumers who are now OUT OF THE REAL ESTATE MARKET FOR 2-4 YEARS and until they can re-establish new credit and IF the guidelines do not become harder to permit them back into the housing credit market.

NOT A ROSY PICTURE. I don't like to paint a pessimistic picture of the real estate market for the next several years, but . . . . there it is. Increased bankruptcy filings are just another nail in the coffin of the housing industry.

The loss of buying power and credit of millions of American consumers is one fact that the Congress, Wall Street, the Federal Reserve, the Department of the Treasury and the President of the United States either chose to ignore or of which they are oblivious. Either way, they are not facing the facts before their eyes.

"Honey, how long will we be in Chapter 13?"

"Five years, Dear, if we can make the payments."

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 07/06/2009 07:13 AM

Comments (64)

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64 Comments on OPTOMISTIC ABOUT THE ECONOMY AND THE REAL ESTATE MARKET FOR THE NEAR FUTURE? THINK AGAIN!

JUL

Lenn...

Oh great, nothing to look forward to in that information. Now I don't even want to go to work.

Alarming stats.

Yes, I think it may be premature to think this is over.

While alarming, I will be surprised if these numbers don't end up higher. The numbers I have seen surging in terms of mortgage delinquencies and credit card defaults point to a consumer that is under a lot of economic stress.

What is unfortunate, is those numbers pale in comparison to the 15 million Americans who are under water with their mortgage.

There is an underlying weakness in our economy . For a long time we did not invest in America. By that I mean in our education and technology. We just lived "off the fat of the land". Now we are paying. I have to agree with you aboiut the outlook baring some major event that we do not yet see .

Wow. In a previous post you made a statement to the effect that the economy is not dependent on the stock market but rather on the positioning of American families to be able to buy homes, consume goods, pay for services, etc. It's common sensical but bears repeating anywhere and everywhere.

Lenn - That number of bankruptcies is a scary number indeed. It's climb year over year is alarming as well. Did they say what the actual number are through the first half of 2009 ? I guess the only slight glimmer of hope is that the number comes in not as high as the 1.4 million estimate.

Lenn... kind of funny that you just wrote about this. I have been working on a blog about the overall picture and it won't be a pretty blog. You bring up part of the puzzle that I am putting together. I also hate putting negative facts out there, especially when it relates to the real estate market, but this is scary. And yes, I don't believe many are facing the facts, the so-called facts that are staring them right in the eyes, as you stated. thanks for sharing this.

jeff belonger

I think the current administration is not savvy enough to handle the problems. It's a shame that people have to turn to BK but if the banks won't help, that's the only way left to the homeowner. The ding on your credit report is nothing compared to getting rid of the problem and being able to sleep at night finally! People are backed into a corner and left only with this option.

You got it Lenn..and if these bank had a little fore thought..they would let consumers short sale their homes, before they are behind..so they can maintain their credit..and get back into the game..sooner.. It is rediculous

Lenn,

Supposedly, the brightest minds in the world haven't been able to break this downward spiral. They seem to be so stuck in their failing policies.

For all of us real estate agents/brokers, forewarned is forearmed.

Rich

I wish things could finally turn around. I have no other option but to stick it out and make things work. People will still need to buy and sell homes.

Lenn - the picture has already been painted, you are just pulling the cover off of the canvas.

Lenn, I take the Washtenaw Legal News, it is a paper $5.00 a year. In it it shows who has filed for bankruptcy, who has filed for divorce and who is in foreclosure. EVERY week, there is a new lender or Realtor listed in that. Some of those listed, I am shocked over. They appear to be top listing agents and I know at one time were in the top selling agents in our Board.

What is up with this?

It is heartbreaking.

Lenn, absolutely frightening. Add to this the removal of the $8000 first time buyers credit (not that that is the answer) and whose going to be buying houses?

The tax credit is strongly driving things for us here in Oklahoma!

Lenn, thanks for starting my week out on a depressing note. I wouldn't be so depressed, if I didn't agree with you.

Lenn--Can't argue with your logic....doubt anyone can. Even the VP just admitted that the economy is in worse shape than they originally thought. We live in very interesting times. Better to be an optimist to get through the day-to-day.

I guess as Realtors we will have more time blogging in ActiveRain. The great Realtors will always find buisness. In AZ, only 10% have activated their license. Wow

Wow, a hate reading about this on Monday morning...but, it is reality, and so scary.

Lenn, I think that at some point, as more and more people see foreclosure-related tumbling of their credit scores, that there will be sort of a lowering of the standards to allow some of these people back in. There are so many factors that lead people to foreclosure, even those who borrowed prudently and had good down payments back when they bought. I see exceptions being made for temporary setbacks (job loss or illness) for people who didn't try to game the system and who didn't trash their houses before they left.

Hi Lenn

We are in challenging times, and we continually look for opportunities and be prepared to make then most of them.

Good luck and success.

Lou Ludwig

Hi Lenn Your blog is a wake up call..that is for sure..We hold on to the positive thinking as we should but we have to be realistic. It is the real time world out there and it isn't pretty for buyers,sellers or our Industry. NAR tells us to work harder...and just what does that mean when most of the times ...it is OUT of our hands ?

I just read a blog where a new member questioned how to get into the market of REOS and basically all the comments were negative with little help for her. The sad thing many agents are floundering like a fish out of water.As far as a commission paid agent..we are the forgotten.

On this thought it would be interesting if Fannie/Freddie/FHA would actually help by loosening some guidelines for the next few years. Getting people back on their feet ASAP should be top priority so that they can stimulate the economy. Documented hardships should be a consisderation still instead of kicking them while they are down because they don't have a 620 FICO score.

It will be interesting to see if lending guidelines adapt with more leniency for short sale sellers, foreclosed owners, and bankrupt people with a good story. Some were victims, others abused the system. When they can work out a system that separates the two we'll be on our way to righting this thing. If not, look for lease/options, contracts of sale, and rental demand to increase. They all need shelter and we provide it.

Lenn - What is depressing is that it's more difficult to file bankruptcy now, yet the numbers are still climbing. I wrote a post yesterday pointing out that the government has now loosened the requirements for qualifying for the Making Home Affordable program. This shows that the government sees the reality that the program isn't working; and the new changes will do little to help. The economy in general and housing in particular are in for some very difficult times. That's the reality that we must all face as we make plans for the coming years.

I recommended this for a feature; while it's depressing news, it's news of which we must all be aware as we move into the future.

Lenn,

I did not want to read that on monday morning.

Lenn --- I just read Debe Maxwell's post (very inspiring) and then now yours takes that "good feeling" away -- your post bothers me a lot but only because I feel it is so true. I'm worried about our America as we knew it.

Mama Liz's Signature

Okay...that's pretty scary although you know me... I'm not going to give up :)

And this is just what everyone needs on a Monday! There is still a lot of bad to go through before we find the good again. It's a shame that so many people are facing hard times ahead.

Hi Lenn! You and I are on different wavelengths today--or could it be that you're a realist and I'm a die-hard optimist! LOL It is scary that we're veering away from America as we know and love her and heading who-knows-where...very scary.

Richard. HA! Welcome to reality in the morning.

Laura. Alarming facts.

Jennifer. Indeed. Premature at least.

Mark. BINGO! Those 15,000,000 Americans who are upside down are the neglicted victims of this econony. They were totally ignored when the government passed out the "fixes" to the Wall Street Gangs.

Charlie. I see no bright spot in the economy. Absolutely none. Oh, we'll recover, but it may well take decades.

Tanya. Indeed. Too many in power believe that the stock market IS the economy. It is not. The American family is the economy and all they got from the "stimulous" was lip service and short shrift.

Wall street has no vote. The American people do. I hope they use it.

Lenn- We are getting a whole wave of new foreclosures this summer coming on line with ARMS adjusting also! Florida is down temporarily in filings but I am anticipating the whole new lot to come on the market soon.

Katerina. Of course, as ARMs reset, especially the ALT-As that were used in 2007. . . . .

Debe. Just save your money and stay out of the mall. None of the optomistic prognostigations that I read everywhere are supported by hard data. The relentless decline is support by hard statistics and disclose what has already happened.

The optomists may predict rosy pictures, but they cannot support them with any facts or trends. Folks are living in a dream world.

Fact is, the government doesn't want us to know how bad things really are.

people need a good dose of realism. politicians and the media have been able to spin things for so long, but this time people are starting to realize these are different times.

as for the guidelines changing, i certainly hope they don't. I think it would be silly to increase the age requirements for BK since most people out of BK are actually GOOD credit risks because they have made a drastic change to get their debt under control, PLUS federal law forbids them from filing again for several years. most of these people weren't irresponsible, the circumstances changed and they found themselves with no other way out. nobody likes BK, but at least people have that option. It's not the end of the world and it doesn't "destroy" your credit for 7-10 years. it only means you have to get creative about rebuiding a credit history. not that hard if you know what to do and resolve to live at or below your means.

FHA will allow loans for those with one year of satisfactory payment history in a Chapter 13 (with trustee approval) and two years from discharge on a Chapter 7. Just gotta keep everything clean that wasn't included in BK and re-establish credit if need be.

John. Agreed. I have advocated bankruptcy for many of these home owners for years. I was a bankruptcy trustee in a former life and am quite familiar with the processes. I was very disappointed when Congress refused to permit bankruptcy judges to modify residential primary residences loans.

We've sold many homes to folks with bankruptcy discharges 2-3 years. Several times we have everything ready to go and just wait for the 2 year anniversary to go to underwriting. It works.

Lenn, if we could find the way to get the special interest groups, such as bankers out of the halls of the White House, we might actually be able to get out of this mess. As it stands now, it looks like it can only get worse.

We may be seeing a day when a 550 credit score is "not too bad". People will always need shelter. Remember the wraps and owner financing options from the 80's? We'll just have to pull out some of our old dusty books and figure out how to make things work.

Tina in Virginia

Lenn -

I love your "cut the crap, here's the real story" stories you post each day.

Yeah, it sucks out there. Yeah, it's gonna suck for a lot longer than any of us wanted, hoped for, or anticipated.

Time to put on our big boy and big girl panties and do what we can, individually, to get through this....together.

More bad news for the housing industry. I still see our market doing OK in the near future and as we get through these and other issues the market will come back

An agent in DC said to me over the weekend - we were discussing the multiple offer situations we have been seeing lately - her broker said they all needed to be ready because in a few months, the floodgates were going to open, the buyers would come pouring in and it was going to be like 2005 again. I was absolutely stunned. I want some of what she's drinking!

Lenn - I was just telling my best friend/seller client tonight that last year when we put her house on the market that we were thinking things couldn't get any worse. Thank goodness she works in the financial fied and can understand all this. Who would think we would have gone from worse to worser in a year?

JUL

We seem to be lucky here in San Diego because King Bush started two wars which are ongoing, and since the military has a large and significant presence here in San Diego County, there's a lot of money passing through San Diego, including an extra $8 billion in Federal Stimulus money.

Our home sales have been up for 11 consecutive months, and prices have been up or flat for 5 consecutive months. June statistics won't be out for another week or so, but I expect to see 11 and 5 increase to 12 and 6.

Suesan. You have discovered the "secret to the workings of the U.S. political system", greasing palms and getting paybacks from the folks who spend tax money.

Tina. I don't see credit guidelines being lowered, unless Barney Frank becomes president. If anything, they are being tightened daily and every other facet of home buying becoming more difficult.

Coleen. Indeed. I sound the warnings regularlity. Of course, anything I say is just my opinion. One thing is for sure. I truly wish I were wrong.

Terry. In time. The question is, how much time?????

Susan. D.C. is still losing value. Below is the report for April 2008 to April 2009. Numbers don't lie.

2009 2008 % Change

Total Sold Dollar Volume:	$ 236,698,718	$ 300,777,214	- 21.30 %
Average Sold Price:	$ 489,047	$ 564,310	- 13.34 %
Median Sold Price:	$ 394,950	$ 440,000	- 10.24 %
Total Units Sold:	484	533	- 9.19 %
Average Days on Market:	91	78	16.67 %
Average List Price for Solds:	$ 535,075	$ 602,616	- 11.21 %
Avg Sale Price as a percentage of Avg List Price:	91.40 %	93.64 %

Carol. Indeed. Worser and worser in a year and for the past years. I don't see any improvement over the next year either.

Russel. That would reflect one of the "niche" markets for which San Diego agents should be grateful for the fortuitous location.

This is why Lenn's blog is one of the best on ActiveRain. She deals with the facts and tells it like it is, despite the fact it may not be good for her personally.

This is rare for a real estate agent. Most are happy telling you, and really believing, "We're nearing the bottom"... "Now is a great time to buy".

Better to deal head on with what we are facing. It still makes sense to buy even in a declining market depending on your situation. I'd much rather have an agent that is very clear about the down side risk and one with rose tinted glasses.

Congrats Lenn. Great post.

And so it goes... I will say that I cant imagine why anyone is balming this administration for the woes they see... They have been in power for a solid 6 months and a couple of days... they are doing what they can, and as I see it, a better job than the previous administration. These things just dont go away in that short amount of time... and as you say, Lenn, there are a few more years of this coming... brace yourself...

Hope all is well for you in the DC, Virginia & Maryland areas. We have buyers, despite one of the highest unemployment rates in the country, and our State looks to be one of the "first down, last up" places.

So while it may be slower than previously, there are still people able to purchase what is now a much more affordable market, in Rhode Island, which was one of the least affordable markets in the boom (measured by the ratio of income to housing costs)

Thanks John. Sometimes it doesn't make any sense.

I advised a short term military buyer to negotiate for a longer than 2 year assignment to the area of Chantilly VA. He appreciated the advice and has decided to buy anyway because he would then go overseas and his family would remain here.

He will buy, an aware consumer, with the understanding that he won't be in position to sell until the property has appreciated about 7%.

The money is devaluing as well on top of this. I'm not sure greenbacks are the best place to park your savings right now. I just transferred a chunk of our cash into a newer car that will last another 10 years.

I think the real estate market has to be viewed locally, at least in part. Some areas are simply not taking as much of an economic hit.

Jeff. Some areas didn't inflate as much as others and didn't have to fall as much.

National statistics are useless.

I just paid cash for a Toyota 4Runner in December. I should get some real mileage from it.

Not gas mileage, but so be it.

Lenn,

Appears that a complete reset of the mortgage and real estate markets will have to happen before a durable recovery can begin and gain a solid footing.

Esko. I agree completely. However, housing has been the engine that kept our economy going for 50 years.

The loss of a viable housing industry will reduce out GDP for 10-20 years, IMO.

Sad but I firmly believe it. You cannot reduce the American consumer group by the percentage that have been ruined or imprisoned by a mortgage and not have serious harm to the national economy.

The politicians either can't see it or don't want to talk about it.

Although I don't think there is reason for artificial exhuberance with the current marketplace, I do see signs in our local market that give reason to be more hopeful. However, California has implemented a 90 day moratorium on Foreclosures, which we are about 3 weeks into. However some banks are exempt from the moratorium. I do suspect that come Fall, we will begin to see another wave of foreclosures hit the market big time. I'm also concerned about credit card debt which is looming out there.

JUL

Lenn,

We just have to cast out minds back to the early 80's; it wa terrible then, but strategies were put into place. Part of what Myrl is talking about is the banks holding back foreclosures and not flooding the market with them.

I believe sometimes people would rather have blinders on...its too ugly...to stressful...it couldn't happen. I knew this day would come but not to this extent..meaning values and the ability of qualifying for a loan. I remember back in 2002 I told an agent this would happen...I remember clearly the option arm loans...the 100% financing..just about anyone could get a loan...and while back then it was extreme now lenders are going the opposite way. This is the trickling down affect of what has happened in the past. I think we are going to see and hear more about bankruptcies, more foreclosures...more job loss...dang I need a drink now! :) The picture is definitely not rosey.

Midori. Agreed. Sadly, I believe it's going to get much worse. Be prepared.

Terry. For sure, but they won't go away.

Myrl. Moritoria on foreclosures simply postpones the event. It will come.

JUL

Paul. One of the reasons why some of us (spell that me) focus on the present and albeit fairly new administration is because, in that short 6 months, we have seen the most aggressive power grab in the history of the Republic (which they are trying to turn into a Democracy), AND because, through that consolidation of power, they are committing monies that will not be seen for generations to come.

While it's only been 6 months, it's been 6 months of spending that appears to be committed for the next 7.5 years.

The not so public diminishing of our national and international defenses is, in my opinion, of more concern.

I'm looking for the motivations behind the transformation and I don't like what I see. But, of course, I'm paranoid.

It may get worse, before it gets better, although I've heard the worst is behind us.
I was in a huge department store yesterday, and the place was deserted. No one is out shopping.
People who are employed, are afraid to lose their jobs, and we have never had so many people unemployed before. People here, for the first time in a long time, are not making their credit card payments (or even on time, when they do pay some...)...

I guess praying may not hurt.

JUL

Lenn and Sylvie,

I have two posts coming out on Monday on this. I've researched this to death, and quite frankly, I think we're in for a s**t storm yet. The posts will be called "Forecating the housing market: and "I hope this guy's got it wrong". (Kevin Page) Google this guy-he's never wrong!

Key now is how do intelligent people make the market work for them? I'm not setting MY hair on fire; I'm looking for opportunities.

You guys are both intelligent; where are you going?

Hi Lenn -- I agree, not a pretty picture. In these awful times, one would think the government would be more responsive to the little guy, but as usual, it's never seems to be the case.

JUL

Chris. The lawmakers have not enough sense of the lives of the "little guy" and their families. They know only of the "guys" big enough to hire lobbiests to grease the palms and coffers of the lawmakers.

I have absolutely no respect for a one of them. Not a one of them has stood up and presented anything of viability to stop the bleeding of the American family.

They'll be sorry. In the end, when enough American families are hurting beyond belief, they will turn the rascals out and put some new rascals in. Hopefully, a few of the new rascals will have learned a few things along the way.

Sylvie. I don't believe for a nanosecond that the worst is behind us. I believe that the worst is ahead of us for the next decade or two. Nothing, absolutely nothing that has come from the government is going to help the average American family.

Terry. "Make the market work for me?"

The question is "How can the present market work for the American family?:"

It can't.

The best we as real estate agents can do is identify opportunities in the market and target them. I've always done that and will continue to do so.

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