I hope you had a great thanksgiving holiday...but now it is back to business.
As recently reported in www.DSNews.com, the ongoing controversy surrounding deficiencies in foreclosure documentation is taking its toll on the housing market as a significant share of home shoppers refused to even look at distressed properties in October, according to an industry study conducted by Campbell Surveys. Fears of litigation from former owners who lost their homes to robo-signer foreclosures are making REO properties unattractive since legal battles could tie-up the properties for months or even years to come. With foreclosures on the rise, this presents a major problem for lenders who otherwise would get stuck with holding and maintaining unsellable properties. News reports that major servicers were pulling REO properties off the market, including some already under contract, clearly spooked would-be homebuyers, Campbell Surveys found. The company's closely-watched monthly survey found that 14 percent of owner-occupant homebuyers and 6 percent of investors refused to view foreclosed properties in October. This buyer fear was even worse for short sale properties, where 30 percent of owner-occupant shoppers and 20 percent of investors refused to consider short-sale homes.
Not surprisingly, the drop in overall distressed property sales activity helped produce a decline in average prices for short sales, move-in ready REO, and damaged REO in October. This certainly has helped sellers of non-distressed properties which suddenly became more attractive to ready buyers. This increased demand has pushed their prices higher.
Is there an end in sight? Not soon. Citigroup, which has adamantly contended that they were not involved in the robo-signer problem, has uncovered some 14,000 defective foreclosure actions. Core Logic, the company which provided analytical date for the investment industry (www.corelogic.com), indicates that there currently are 4.2 million homes on the market for sale, a 15 month supply. However, beyond this "visible market", there is a "shadow market" of properties more than 90 days in default, in foreclosure, or REO's that are not on the market. Core Logic reports that there are 2.1 million more properties. When added together, we actually have a 23 month supply of houses on the market. Typically a reading of six to seven months is considered normal, so the current total months' supply is roughly three times the normal rate. And it may be even more than that. Lender Procesing Services which handles foreclosure processing estimates that there are more than 7 million loans in default! (DS News 11/17/10). In the aggregate, alnaysts are projecting a possible 7% drop in home prices over the next year before the housing market starts to stabilize.
This does not come as a surprise to many of us, but for some it may be. The bottom line is, soon this mess will be cleaned up and it will be business as usual. However, many experts believe in increase in foreclosures will mean an increase in short sales as the consumer mindset changes.
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