Economists and recent studies indicate that, though the housing market appears to be recovering, the climb out will be gradual.
“We are five years through a 10-year adjustment process,” Doug Duncan, chief economist for Fannie Mae, said this month during a mortgage banking conference.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is expected to be fully implemented in the next two years. As the industry adjusts to the new rules, private investors are expected to stand by until they can more accurately judge risk levels.
Dodd-Frank was enacted to ensure more transparency in the financial industry after the mortgage crisis pushed the housing market and the economy into a tailspin.
Since 2006, millions of Americans have lost their homes to foreclosure. Millions more are likely to suffer the same fate.
In a recently released report, the Center for Responsible Lending estimates we are only about halfway through the housing crisis.
According to the study:
- For home loans issued from 2004 to 2008, 6.4 percent ended in foreclosure, and 8.3 percent more are at immediate risk.
- Foreclosure risk increases with loan risk. Borrowers who took on mortgages with prepayment penalties, hybrid adjustable rates and pick-a-payment options experienced higher-than-normal foreclosure rates.
- Minority borrowers were much more likely to receive high-risk loans, even after taking into account income and credit history.
“(Dodd-Frank) will certainly have a positive effect on the success of future mortgages,” the Center said, but the damage is done for those already in today’s battered housing market.
Industry experts say banks own about 800,000 homes and another 1 million are at risk. And it will take three to eight years to clear out the excess inventory before prices start to increase.
“Inventory continues to outpace sales,” Rick Sharga, executive vice president at Carrington Mortgage, said this month during a mortgage industry conference panel discussion.
Foreclosure delays and the robo-signing mess have elongated the recovery, Sharga said, and until demand overtakes supply, the market can’t recover.
That could be a long wait. Many Inland Empire homeowners have seen 60 percent decreases in home values, with mortgages that are more than $100,000 upside-down. Job losses and cutbacks, payment increases and other financial difficulties have exacerbated their problems, putting them on the edge of a financially devastating foreclosure.
Some don’t have the ability to ride out the downturn, especially when they could be back in the market as a home buyer just two years after a short sale, before prices again begin to climb. (Call us today at 951-778-9700 to see if you qualify to buy again at the bottom of the market.)
Meanwhile, home buyers have benefitted. Great deals are available for buyers now, with the market stabilizing and interest rates historically low.
Five years from now, “real estate is a good place to be,” Duncan said.
For some people, that is. A homeowners who now owes twice as much as their home is worth will likely still be upside-down five years later. Perhaps even 10 years later. But for those who have been biding their time, or even those who already experienced a foreclosure or short sale, the time is near.
Said Eugenio Aleman, senior economist at Wells Fargo: “In 10 years, we’ll be saying, ‘Why didn’t we buy a house (back then)?’”