Most of us have heard the proclamations and the headlines emphatically stating “Housing Prices Have Bottomed.” Depending on your region, that may seem correct. Yet there’s an insidious impasse that may capsize this nascent, fragile housing recovery. I’ve been out there looking for houses to buy and potentially rent out for income. What I’m finding is that due to the backlog of allegedly illegal foreclosure procedures carried out by third party administrators, the supply of REO houses is frozen in legal limbo. One realtor today told me that 50% of foreclosures in Oregon are not on the market yet and are paralyzed in litigation. She’s a principle-broker as well as an agent. She told me, “If we are at the bottom, we may stay there for at least 5 years, and that’s a realistic assessment.”
Thus the number of foreclosed homes versus the hoards of speculators who want to buy them for pennies on the dollar and either flip or rent them out is causing a temporary price squeeze. The situation on short sales is as bad or worse. There are many of them coming on the market right now. If you’ve followed the news about them you know that they can take 6 months or longer just to get the approval of the lender. Many frustrated buyers simply have given up!
“Borrowers Face Big Delays in Refinancing Mortgages”
The above headline was on the front page of The Wall Street Journal on Wednesday, May 9, 2012. It paints a disturbing picture of how long it’s taking borrowers to refinance or originate a mortgage. This is in spite of the fact that 30-year mortgage rates averaged 4.05% for the week ending April 27th. Mortgage rates are tied to the yield on the 10-year Treasury bond. That yield has fallen to an historic low of 1.83%. Can you imagine anyone in their right mind loaning money for 10 years at that rate? If that doesn’t tell us that the Federal Reserve is involved in both the mortgage and treasury debt businesses nothing does. These historically low rates have helped spur a large number of refinancing of more expensive debt which on average has “reduced their first-year interest payments by $2,900, according to mortgage finance giant Freddie Mac” the Journal’s article pointed out.
We also recently learned in a New York Times article that, “Bank of America has started sending letters to thousands of homeowners in the United States, offering to forgive a portion of the principal balance on their mortgages by an average of $150,000 each.” The article went on to reveal that, “The reduction for qualifying homeowners could amount to monthly savings of up to 35 percent on mortgage payments…”
The bottom line: It’s not rocket science to understand that the so-called “Housing Recovery” is adding up to what looks like a long-term bottoming-out process. The rental market is where the money is and where the action is right now. There are an increasing number of individuals and families who need to find housing to rent and will remain renters for years to come. Pass this article on to prospective owner-clients with a message that you’re keeping up to date on the latest trends and market issues that are of interest to them.
End it on a positive note by giving them a piece of good news like, “If you’ll need to refinance any properties soon it looks like interest rates are at all-time lows again.” You could also tell them about a vacancy you’ve recently filled or a rent hike you’d like to put in place to increase their income. Keep your owners well informed and look for opportunities to remind them how fortunate they are to have a property manager like you.