Helping the Housing Recovery - Part 1

 My colleague Tamara Lemmon recently brought to my attention a piece she wrote for foreclosure.com outlining what must be done to accelerate the housing recovery.  She has allowed me to share the article with you here on my blog:

"Warren Buffet, in his annual letter to shareholders of Berkshire Hathaway, said, “Last year, I told you that ‘a housing recovery will probably begin within a year or so.’ I was dead wrong.” While Buffet remains bullish on a housing recovery near term, he acknowledges that how long that recovery is in the making will depend on a variety of diverse factors. It is the responsibility of any president or political leader seeking or holding office to help stimulate the recovery of the housing market and to lead the United States out of the current recession. Although this process is complex and dynamic, there are three key steps that can help steer the macro-economy as well as the housing sector in the right direction: a decrease in the amount of red tape currently stifling foreclosure proceedings, incentives to lenders for making home loans, and a decrease in the national debt via a balanced budget.

After the real estate bubble burst at the end of 2007, the United States housing market endured foreclosure rates that quadrupled from their baseline in 2005 to the peak of the housing collapse in mid-2009. Since 2009, foreclosures have steadily declined nationally, and have broken off sharply in certain regions due to the influence of outside forces. Las Vegas is an excellent local market to consider as an example. Las Vegas retained the dubious title of “foreclosure capital of the U.S.” for five straight years from 2007-2011. In late 2011, foreclosures suddenly and dramatically ground nearly to a halt. In August of 2011, there were 4,063 notices of default issued in Clark County, NV. In October 2011, just 2 months later, there were only 43, a decrease of almost 99%! Most experts believe that this drop was due to the passage of Nevada Assembly Bill 284 which placed extensive new regulations into effect for any banks seeking to process foreclosures in the state of Nevada.

It is incumbent upon any leader seeking office, to determine if the decline in foreclosures that has resulted from these and similar measures nation wide, is helping the housing recovery and the economy at large or hurting them. Again, Las Vegas can be used as a test market. The median home price in Las Vegas has risen steadily for the past nine months, for a gain of as much as 30% in some submarkets of the valley. On the surface, this would seem to be nothing but good news for beleaguered Las Vegas homeowners. The problem is, even with all of this upward movement in price, 70% of Las Vegas homeowners are still upside down on their mortgage, with 36% owing more than double what their home is worth. In other words, the upward pressure being exerted on the median home price in Las Vegas is due to the artificial lack of inventory created by the abrupt halt in foreclosures. The majority of homeowners still cannot sell their home for what is owed, so those homes are essentially “frozen” within the market. They cannot be resold or refinanced. This drives the prices of the relatively few homes that are available to unreasonable levels, and sets the stage for a potential second real estate bubble in cities like Las Vegas. Nathan Martin, blogger for Economic Edge, puts it this way, “Each new up cycle produces more debt, recession follows, clears out the debt and allows growth to resume. But when you interrupt the debt clearing process, real growth cannot resume as incomes cannot support more debt.”

In order to prevent this, we must loosen regulations prohibiting foreclosures and allow banks around the country to re-initiate the normal foreclosure process for delinquent borrowers. This is not cruelty; it is practicality. Foreclosure stops the bleeding. Foreclosure provides a reset button for home values in hard hit communities. Once a home has been foreclosed upon, it can re-enter the market at the correct value. Eventually, if the needed foreclosures are allowed to proceed, home prices will finish correcting, inventory will “thaw”, banks can clear their books of non-performing assets freeing up capital to lend, and the real estate market can finally return to normal. Halting foreclosures not only delays this recovery, it creates a paradigm that is ripe for a second housing bubble and a second housing collapse. While it is likely that banks will find their own way around bills like AB284, and resolve issues such as those surrounding MERS, the continued submission of legislation aimed at slowing or blocking foreclosures should be viewed as counter-productive to the economy. The first step to any viable economic and housing market recovery plan must be to legislate the resumption of the normal foreclosure process in all states, free of unnecessary red tape."

If you are interested in learning more about the opportunities that are available for investors in the current Las Vegas real estate market, contact Glenn at VIP Realty.