Monday, December 14, 2009

2nd Wave of Foreclosures!

2nd Wave of Foreclosures???
We keep hearing that there is another large wave of bank-owned homes about to hit the market. These are all the homes that the banks have foreclosed on (or should have foreclosed on by now), but haven’t been put on the market yet. Why haven’t they been put on the market? There are a variety of reasons. First, there were all the government-imposed moratoriums mixed in with the banks imposing foreclosure moratoriums on themselves. This is similar to how there are some programs in the stock market that put a halt to trading if the market trades down by more than so many points in a day. Sort of a “cooling-off period” to prevent catastrophic panic selling. A second reason is that many of these banks are just overwhelmed and can’t keep up with the workflow to process all these foreclosures. It may sound silly, but a lot of them may be just sitting in a pile on someone’s desk, waiting for them to wade through the hundreds, if not thousands, of files they are responsible for.

The third reason is a bit more complex. It has to do with the bank’s reserve requirements from the Federal Reserve. They are supposed to keep so much cash on hand to offset their “bad” loans. Well, a lot of banks don’t have enough cash, so they are delaying foreclosing on these homes to keep their reserve account intact. If they were to take on too many foreclosures, the Federal Reserve could declare them insolvent, and take them over.

All these factors have combined to keep many bank-owned homes off the market this year, which has artificially depressed the number of homes for sale. The big question is when will they all finally get released onto the market? No one knows for sure. And now we are starting to wonder if the banks and the government are going to be able to keep finding ways to trickle the inventory out slowly, instead of in a big glut? If they have, then this IS the bottom of the market.

TAX CREDIT EXTENDED: April 30, 2010 is the new deadline for the $8,000 First Time Home Buyer (and now repeat homebuyer) Tax Credit. Click here for a video regarding how the credit works, and you can visit the website to read the frequently asked questions about the credit.

Market Recap
The chart below shows that the cities east of highway 880 are losing homes at an alarming rate. Home prices have risen in these areas as much as 10% in 6 months. Demand has far outweighed supply.

For Comparison: The West side of Highway 880 is slowly picking up steam and following suit.

Current Prediction
The holiday season will not stop people from buying great deals in the area. The extension of the tax credit will continue to spur activity as well as low interest rates. Prices all across the bay area will continue to rise.

The table represents aggregated values based on MLS data for the specified date.

pix-data" Mistakes are the portals of discovery. "
* James Joyce (1882 - 1941)

* Mortgage rates were collected from publicly available sources ( on the date stated. The accuracy of the information and the availability of these rates are not guaranteed by the publisher. Rates are provided for informational purposes only and are subject to change without notice. Actual market interest rates may vary.