A new wave of foreclosures is expected while housing prices decline for 6th staight month. What does it mean?

According to an article in Smart Money last month foreclosure sales are still flooding the real estate market in America.  35% of all home sales in January were foreclosed homes or for short sales.  This amounts to 91,100 properties in January and this number was up 29% from the month before.

The head of a real estate research firm predicted that this will cause a decrease in prices for homes in the next year.  Statistics have indeed showed that the median home price has declined 8.5% since June of 2011.  This same analyst predicted in the article that home prices are going to go down for a long time to come.

In the city of  Las Vegas foreclosures accounted for 59% of all sales and in Sacramento 50% according analysis done by RealtyTrac.  Other cities have similar statistics.  There is a huge number of foreclosures coming back to the banks currently and these foreclosures are then going back on the market for sale.  This flood of foreclosures will continue to press home prices lower in the future according to analysts.

This is exactly what an article in Yahoo Finance stated yesterday.  According to that article home prices dropped for the 6th straight month in a row.  The Case-Shiller housing price index reports that housing prices dropped in February in 16 out of the 20 cities tracked.  Atlanta, Chicago and Cleveland saw the worst declines while San Diego and Phoenix saw price increases.  This represents a 35% decline in home prices since the recession hit and home prices are now at 2002 levels.

Another article came out in Reuters that a new wave of foreclosures is expected.  In that article they predict that 2012 will be a bigger year for foreclosures than 2011.  Just when you thought it was over.  But it is not over.  Many in the article predict a growing number of foreclosures ahead.  They point to the statistics that show that many major banks and many major cities are showing a rise in foreclosures.

The Reuters article points out that the toxic mortgages are now gone.  Sub-prime, and balloon payments, and negative amortization mortgages have been foreclosed on or short sold and are no longer in effect.  Now we have regular mortgages that are being foreclosed on.  Mortgages with normal interest rates and fixed rates for 30 years.  Mortgages that are owned by regular working families.  Families who are extremely responsible but still can’t afford the mortgage.

These people are being stressed now.  They cannot afford the mortgages I argue because the price of everything is going up especially food and energy which are not counted in government inflation statistics.  That is what I argue in this blog http://bit.ly/HUNMNJ .

But it is clear that the housing/foreclosure is not ending but may get worse and be with us for some time.  I believe that we underestimated the depth of the crisis from the beginning.  I had realtor tell me years ago that this was serious.  At a realtors convention he was told to expect 10 years of depressed prices in real estate.

The amount of foreclosures is astounding and these all have to be put on the market at some time and they will depress it.  Indeed there appears to be a shadow market of these homes that the banks are holding off the market as I argue here  http://bit.ly/IUF0k0.  When these homes are put on the market instead of being kept off, prices could decline further.

So with home prices declining, foreclosures increasing, and prices of living increasing we have a perfectly bad storm it appears.  The government printing of money and the resulting devaluation of currency is increasing prices of food and energy so that people can’t afford their homes.  This stresses their finances so they cannot afford their homes which leads to more foreclosures and more homes on the market.  We seem to be in a downward spiral economically.  Don’t expect housing prices to go up anytime soon.  It is also a good time to take care of unneeded unsecured debt do you can afford to pay for your home.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

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Shadow inventory of foreclosed homes- could it mean we have shadow depression?

(See my currnet blog for an updateon foreclosures: http://bit.ly/JGU1dZ ).

There appears to be a definite “shadow market” of foreclosed homes that the banks are holding off the market.  They sometimes call this the “shadow inventory”

The banks are holding these homes off the market presumably to prevent a real estate crisis.  As I wrote before about this issue there is this huge reservoir of homes that the banks have foreclosed on and taken full possession of.  These homes are “shadow inventory” because the banks have kept them in the shadows and they have not listed these homes on the MLS for realtors to sell.

The Wall Street Journal recently did a story on this shadow inventory.  In that story they cite a study done by real estate consulting firm in Irvine California.  They estimate that there are 4.7 million homes in this unreported market which amounts to a 10 month supply of homes but the number could rise to as many as 5.6 million homes.  Some of the worst cities have a 20 month shadow supply of unlisted and unsold homes.

Analysts at Standard & Poor’s report that the largest backlog of shadow inventory exists in New York city followed by Miami.  Standard & Poor’s estimates that the time it will take to clear this inventory is up 18% over the first 6 months of 2010.

There is certainly a lot of homes in the “shadows” and this is a serious problem.  This is why some realtors are predicting that this foreclosure/housing crisis will be with us for 5 to 10 years.   The Irvine report also estimates that this shadow inventory will stay at elevated levels until 2016!

The report says that sales of distressed homes will rise to 40% of all home sales through 2012 and that real estate prices will continue to fall by 8% to 11% through 2012!  They also predict that if the economy worsens or if interest rates rise then housing prices will decline further and for longer.  According to the report distressed home sales will peak at 2.3 million homes next year.  So we haven’t reached the peak yet and it will get worse.

Worse than that a friend of mine was at a real estate conference recently attended by a president of a big bank.  The bank president denied the existence of a shadow inventory.  If the banks don’t want to admit that there is a shadow inventory and it is well-known enough for consulting firms and the Wall Street Journal to write about then what are they trying to hide and why?

Can we not take the truth?  It seems to me as I have written about many times that we are currently in a depression.  I don’t expect that anyone in government or the banks (who are now very closely tied to the government) will admit it.  They obviously have no problem lying about the shadow inventory of homes so it seems unlikely that we would ge the truth about how deep this economic crisis is.

I’m sure they will tell us when it’s all over.

I am a bankruptcy attorney in San Diego.  For further help please visit my website at www.farquharlaw.com.

Pilot program-In Rhode Island bankruptcy judges could be allowed to modify mortgages in bankruptcy court.

According to Fox business there is a pilot program in Rhode Island that will allow judges to write down mortgages in bankruptcy presumably for to the current value of the home.  Senator Whitehouse of Rhode Island has been active in the mortgage and foreclosure crisis for some time and he is apparently asking for this to be passed in the lame duck session of Congress.

Mortgage reductions in bankruptcy court have been asked for some time but the have never been passed.  Bankruptcy judges currently can “strip” a second mortgage in chapter 13 bankruptcies if they are totally unsecured but first mortgages can not be written down to the value of the home as of yet.  Many say that this should not happen as it is unfair to some and because it would put a great burden on the banks.

I can find no confirmation of this other than Fox Business but apparently there is a pilot program active in Rhode Island to write down these first mortgages.  This would mean a huge reduction in both the principal and the mortgage payment for many people.  If this was to be put in place nationally it would solve the foreclosure crisis.  If people could write down their loans to the value of their houses many people could probably stay in them.

I know it would help many of my clients tremendously.  Most people who are in foreclosure are upside down in their mortgages meaning that the homes are worth far less than what they owe on them.  If we could correct this imbalance then it would allow a large number of homeowners to stay on their homes.

It seems that with the continuing mortgage crisis and the robo-signing bank scandals the idea of allowing mortgage write downs is becoming more popular.  In addition foreclosures are rising rapidly.  According to Fox (as reported by Realtytrac) foreclosures are up 76% in Seattle, 35% in Chicago, 26% in Houston and 23% in Detroit.

With all of these foreclosures there is increasing political pressure to do something to call a halt to it.  A foreclosure moratorium has been called for but a mortgage write down in a bankruptcy would be a better and more permanent solution.  I believe that the banks are now in public disfavor and they can do less and less top stop this from happening.

If you need any help with your bankruptcy or foreclosure please visit my website at www.farquharlaw.com.  I am a bankruptcy attorney practicing bankruptcy law in San Diego.