More than 1.7 million homeowners were verging on foreclosure this fall, making it likely that these houses will soon end up on the market one way or the other, driving down overall housing values.
"We're going to be dealing with high levels of distressed (sales) in the marketplace for at least a couple of years," says Mark Fleming, chief economist of researcher First American CoreLogic, which has been studying the problem.
And from The Wall Street Journal, James R. Hagerty and Nick Timiraos (12/17/2009) and Bloomberg, Emily Friedlander (12/17/2009) comes this update that more people are choosing to walk away from underwater homes.
"We've been in recovery mode for most of the year. How many foreclosures do they have to dump on the market to affect that? I don't know," says Deborah Farmer, owner of StarLight Realty in Tampa, Fla. "Any house priced under $225,000 will be affected by a large increase in foreclosures in this market."
A growing number of home owners in Arizona, California, Florida, and Nevada—where prices have fallen the most—are walking away from their properties. They are leaving the deal behind not because they can’t pay but because they don’t want to. A study by researchers at Northwestern University and the University of Chicago concludes that as many as 25 percent of defaults are driven by strategy, not necessity.
If many other people follow suit, “It’s going to be really difficult to prevent a cascade effect," says Paola Sapienza, a professor of finance at Northwestern.
Brent White, an associate law professor at the University of Arizona, points to actions by banks themselves to avoid staying in bad business deals as an example of why homeowners should make a decision "unclouded by unnecessary guilt or shame."
For instance, on Thursday, financial services firm Morgan Stanley announced that it is turning five San Francisco office buildings back over to its lender two years after it purchased them when the market was at its priciest. The buildings are estimated to be worth about half of what Morgan Stanley paid. “This isn’t a default or foreclosure situation,” spokeswoman Alyson Barnes told Bloomberg News. “We are going to give them the properties to get out of the loan obligation. Morgan Stanley is apparently current on the loan, so this is what is known as a “strategic default.”
Some might ask: If strategic defaults are OK for banks, why aren’t they OK for ordinary homeowners? You may recall that not too long ago I opined the same in this Blog in a post titled "Just Walk Away Renee." It's interesting that the same institutions that label foreclosed homeowners as deadbeats find it strategically expedient to do the same thing. So maybe I should have labeled my earlier Blog post - Just Get Stategic Renee. Of course, the banks likely wrote non-recourse deals for their building purchases, which allows them to just give the building back to satisfy the contract. Too bad that they won't do the same for their borrowers (a few will; but, most balk at that as a resolution of the debt).
Most of the Market Analyses that I do for homeowners these days result in current market value estimates that are below what they owe on them, which results in them wandering off mumbling to themselves and abandoning whatever plans that they had that involved moving. A homeowner has to have been in the house for at least a decade without refinancing (or at least without taking out equity if they did refi) in order for them to be in a position to consider selling. For those people the issue is giving up the perceived value that they thought they had in the house.
Since I'm just a Realtor and not a lawyer or financial advisor; I, of course, advise people to seek advice on what to do from those qualified professionals. If they want or need to try a short sale I can help with that and there are a few (though very few) reasons to try that route first. I've re-opened my Web site http://www.mishortsales.net/ just to help people better understand their options. I'll have to go update that site to better explain the "strategic" option of walking away.
Posts
No comments:
Post a Comment