Monday, January 28, 2013 – 09:00 a.m.
We’re hearing it everywhere.
The housing market has healed, and there’s no inventory for buyers, is the proclamation of the month.
It’s nice news to hear. But is it really true? Maybe or maybe not is the correct answer.
In economics, scarcity and demand is key to price rise. Right now keeping the available inventory of existing homes for sale is key to pushing up market value.
It’s not secret Fannie Mae and Freddie Mac hold a significant inventory of foreclosed homes. It’s also no secret that new foreclosure rules lenders and servicer’s must now follow, particularly in California, has created a bottle neck of distressed homes. Under new rules, abusive loan servicer’s, such as Wells Fargo, can no longer pursue a foreclosure at the same time the borrower is seeking a modification or other form of relief. The practice was known as dual-tracking.
Making the practice illegal has significantly extended foreclosure the timeline.
And finally, many of the previous foreclosures were bought in bulk by investors looking to make a killing, when the market recovers. Those properties are either rented or sitting idle.
Only time will tell.
The housing market is far form being normal. The “recovery” that we keep hearing about is nothing more than prices rising due to shrinking inventories combined with historically low interest rates. Inventories are extremely low right now because of flippers, investors, and foreign buyers combined with banks keeping inventory off the market (or not foreclosing on people who aren’t paying their mortgages for months or years on end) Interest rates are being kept artificially low thanks the The Fed buying $40 billion worth of mortgage backed securities each and every month.
This sort of market manipulation can’t go on forever.