Waiting to Walk Away?

When is a good time to walk away?

It’s no surprise that the main reasons people walk away from their home is because of a job loss or severe reduction in home value.  Although a surprising factor is how long people hold onto these properties before they actually walk away.

The Federal Reserve have noticed that most people won’t walk away from their property until they are 62% under value. The Fed then looked to separate defaults caused by job losses and other income shocks and those that just gave up paying the mortgage because of the drop in their home’s value. They found that the median borrower does not strategically default until equity falls to negative 62 percent of their home’s value. Ultimately the Fed found that 80 percent of defaults in the sample ended up in default because of a combination of job loss and negative equity.

Another key difference the researchers found is whether or not the home owner lives in a state that allows recourse, which means the lender can chase the borrower for any shortfall after a foreclosure. California is a non-recourse state.

There is no reason these homeowners shouldn’t short sale these properties and get out of a situation where they owe much more than their home is really worth.

Real Esate Recovery Stalled

When will real estate fully recover?

In real estate there is a term called “shadow inventory”.  This is applied to real estate that will be on the market, but we don’t know about yet. This includes all types of homes:

- homes that are several months in arrears on their mortgage and soon to hit foreclosure

- homes that are 90-plus days late and soon to be in foreclosure

- bank owned REO’s that have not put put on the market yet

Due to the low value of these homes, this will keep the housing market in a dismal state for some time to come.

Shadow inventory is scary, but not insurmountable.

A Housing Shortage Is Coming

Are We Facing A Housing Shortage?

As the US economy has faced the worst housing crash since the Great Depression, it is hard to believe that we may be facing a housing shortage soon.  It has been made clear that the nation is not building enough homes to meet with the demand.

Just 672,000 new homes were started in April, an annualized rate and less than half the long-term run rate needed to meet the nation’s natural population growth.

So far, the shortage has been masked by a weak economy that has put a damper on home buying. Once the job market rebounds, however, people will look to have their own homes again. This pent-up demand could get unleashed on unprepared markets, causing shortages and rising local prices.

Chammilionaire Loses Home To Foreclosure

Rapper Chamillionaire is getting out of a mortgage for a home that was valued at $2 million, by not making his payments and letting it go into foreclosure.  Millionaire musicians are walking away from their mortgages, as it makes no sense for them to hold onto a property that has no value.
Chamillionaire has made it clear that his decision to stop paying his mortgage was a business decision, and had nothing to do with financial negligence.

Banks Foreclose On Homes

We are seeing that the banks are taking more homes, even as the number of people who fall behind on their mortgage has declined.  In May, banks had taken back nearly 93,777 properties, which was up 1% from the previous months record and 44% from the same period a year earlier.

One in every 400 homes received a foreclosure notice last month.

Throughout this mortgage meltdown, lenders have been lenient in repossessing homes as they are attempting to deal with the borrower defaults.  As we are seeing the housing market stabilize, they are putting their attention back on the repossession of homes.

Rent or Buy?

Is it better to rent a home or buy a home?

I think that most people are starting to realize that it is best for them if they rent a home.   During the boom years this question never arose, if a person could buy a home it was in their best interest purchase a home.   Considering that the national home prices have slid  drastically, buyers are becoming much more cautious as whether it is the right time to buy.

To determine which option is better, Trulia compares the costs of buying a two-bedroom condo with the costs of renting one. Then, Nelson said, the results can be extrapolated to other classes of homes, such as larger single-family houses.