The New Real Estate Bust
Two different families, two different regions of the US, same story. "We're not bad people. We just have to do this right now." What they're talking about is walking away from their mortgages into foreclosure, leaving the bank holding the bag.
Realtors sell this questionable service, which must have been intended originally to help people in actual financial straits to avoid the worst outcomes of foreclosure: no credit, social stigma, etc. What's different now is that the two families I described above have jobs, are current on their loans, and could even qualify for low-cost refinancing if they chose to. Their loan values are below the present market values of their homes, and in both cases, they want to live elsewhere and have little opportunity to sell right now because of soft market conditions in their areas.
These loans are part of a new kind of problem asset. After the 2008 housing crisis the risk of subprime loans was met with legislation to create tighter controls and better consumer protections. The new reality is that it's easier to go through foreclosure now, if you don't mind being in a poor credit market.
The eventual outcome of easier foreclosures will no doubt be a lot of low-end houses in the market, and a lot of ex-homeowners whose credit scores put them in a high-cost credit market, potentially for many years to come. With home ownership difficult, how many will be content renting housing forever? How many will turn to squatting as a viable choice, with the single family home now out of reach? And what will happen to the future of mortgages as a legally binding contract once large numbers of people assume that--as with shrink-wrap software licenses--"I just signed that because they said I had to, I don't know what it says lol." is a legitimate cause for subsequent action.
Whether availability of easy foreclosures will destroy or stratify housing markets may depend on the old real estate principle: location, location, location. And whether today's customers of the "easy foreclosure" market will one day regret their decision to opt out of home ownership and affordable credit depends on who you talk to. However this plays out, there's eventual economic opportunity for some, and economic peril just around the corner for many others.
8/25/12
Realtors sell this questionable service, which must have been intended originally to help people in actual financial straits to avoid the worst outcomes of foreclosure: no credit, social stigma, etc. What's different now is that the two families I described above have jobs, are current on their loans, and could even qualify for low-cost refinancing if they chose to. Their loan values are below the present market values of their homes, and in both cases, they want to live elsewhere and have little opportunity to sell right now because of soft market conditions in their areas.
These loans are part of a new kind of problem asset. After the 2008 housing crisis the risk of subprime loans was met with legislation to create tighter controls and better consumer protections. The new reality is that it's easier to go through foreclosure now, if you don't mind being in a poor credit market.
The eventual outcome of easier foreclosures will no doubt be a lot of low-end houses in the market, and a lot of ex-homeowners whose credit scores put them in a high-cost credit market, potentially for many years to come. With home ownership difficult, how many will be content renting housing forever? How many will turn to squatting as a viable choice, with the single family home now out of reach? And what will happen to the future of mortgages as a legally binding contract once large numbers of people assume that--as with shrink-wrap software licenses--"I just signed that because they said I had to, I don't know what it says lol." is a legitimate cause for subsequent action.
Whether availability of easy foreclosures will destroy or stratify housing markets may depend on the old real estate principle: location, location, location. And whether today's customers of the "easy foreclosure" market will one day regret their decision to opt out of home ownership and affordable credit depends on who you talk to. However this plays out, there's eventual economic opportunity for some, and economic peril just around the corner for many others.
8/25/12
posted by rich solomon at 6:06 AM
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