One out of four residential homes sold in the third quarter of this year was a foreclosed property, RealtyTrac reports. That makes the sales of such residences big business for realtors and the banks that provide loans for these sales.
The research firm added that “the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process.” Those who live in the neighborhoods in which these homes are sold have no recourse other than to watch the prices of their own homes fall. This reality perpetuates the vicious cycle of home price drops and the housing crisis which has plagued the national economic recovery. The person whose home is devalued by a nearby foreclosure will watch the value of his own house go further “underwater” which, in turn, gives him more incentive to pass his residence back to the bank. No one in the federal government, in the real estate industry, or bank business has found a way to build a firewall against the process.
RealtyTrac adds “The average sales price of properties in some stage of foreclosure was $169,523, down 2.46 percent from the previous quarter and down 0.44 percent from the third quarter of 2009.” There is, in other words, no progress against the problem at the price level.
It makes sense that the firm believes the housing problem will get worse because of the mortgage paperwork fiasco. According to James J. Saccacio, chief executive officer of RealtyTrac,
“The foreclosure-processing controversy, which was brought to light at the very end of the third quarter, could chill demand even further — particularly for foreclosure properties. A quick but responsible resolution to that issue would be ideal to help the market continue to properly clear out foreclosure inventory and get distressed properties into the hands of qualified buyers and investors who will likely add value to those properties and the neighborhoods they are in.”
He will not get what he wishes for. The legal entanglements from the debacle and the chance of multiple government investigations could cause the trouble to drag on for months.
The government has very few weapons at hand to solve the rapidly growing housing problem, and it will likely use none of them. The first is to reset mortgages closer to the actual market price of the homes by which they are secured. This raises the troubles of moral hazard, which homes should qualify, and how much money it would cost and therefore add to the deficit.
The government is also not likely to tell banks to continue foreclosures backed by dubious paperwork and sort out the validity of the documents later.
Washington is the only possible mediator for the tensions which are ruining the housing market. But, Congress and the Administration are too busy, perhaps understandably, with deficit reduction, taxes, and the future of entitlements and defense spending. That is too bad, because the housing crisis is likely to do more immediate harm to the US economy than any of these other considerations.
Note: A total of 188,748 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the third quarter. A total of 113,933 bank-owned (REO) properties sold to third parties in the third quarter. A total of 74,815 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the third quarter
Douglas A. McIntyre
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