Sunday, March 07, 2010

Housing: A Tale of Boom and Bust and a Puzzle

by Bill McBride on 3/07/2010 04:32:00 PM

Leslie Berkman at the Press Enterprise writes about how the housing bubble and bust impacted a small city in Socal: Turnkey Tales: Moreno Valley is prime example of housing boon and a bust. An excerpt:

Last year the inventory of bank-owned homes for sale began to dwindle in Moreno Valley and throughout Inland Southern California as banks began to delay the foreclosure process.

For some, it's a puzzle, though.

Bianca Ward, an assistant to [Mike Novak-Smith, an agent with Re/Max], said her parents had no way of keeping an investment home they owned in Moreno Valley after renters left a year ago and her mother's wages at a casino were cut in half because of the poor economy. Ward said she stayed in the house for seven months without paying rent or the mortgage before moving into a home she bought for herself in Hemet.

"I was waiting any second for the bank to knock on the door ... But that didn't happen," Ward said.

She said the bank repeatedly has delayed foreclosing on the house although her parents would like to get it over with so they can start rebuilding their credit. Meanwhile, she said, "no one is watering the lawn. It is probably an eyesore for the former neighbors."

Whatever the reason for the lower volume of available bank-owned homes for sale, the competition for them now is intense, with banks routinely receiving multiple offers, many of them above list price. "The average house gets seven or eight bids and the average bid is 10 percent above the asking price," said Novak-Smith.
That is happening in many areas - I've heard a number of stories of homeowners staying in their homes and not paying their mortgage, and the banks not foreclosing - and, at the same time, there is intense competition for any home that comes on the market.

This is a real mystery right now. With 14 percent of mortgages delinquent or in foreclosure according to the MBA - why aren't the lenders foreclosing? Is this because of modifications? Are lenders waiting for the HAFA short sale program? And why do Fannie, Freddie and the FHA have a record number of REOs waiting to sell if the market is so "intense"?

There is much more in the article.

UPDATE: To be clear, I have my own views why the lenders are not foreclosing. Part of it is policy - it is government policy to restrict supply and boost demand to support asset prices and limit the losses for the banks. Part of it is inadequate staffing. Another reason is the lenders are making an effort to find alternatives to foreclosure (modifications, short sales, deed-in-lieu). Of course a majority of modifications will eventually redefault, but that still restricts supply for now. It isn't one reason - and the real puzzle is when (and how many) distressed sales will hit the market.