We are now more than halfway through the months of winter weather. The economy is officially out of recession. Home sales for 2009 actually grew over those for 2008. In all, it’s just starting to feel like the sun is getting ready to shine, like the economy is getting ready to grow, like the housing market is getting ready to bloom.
But we need to be careful. Because it’s very likely that what we’re experiencing is the same calm and clearing that comes in the eye of a hurricane. Everything looks like the worst is over, just before the storm comes raging in again with fury and force.
Last week, our parent company, The Warren Group, released its foreclosure tracking data for all of 2009. There was palpable good news in it. The number of homes lost to foreclosure fell 25.4 percent, to 9,269 last year from 12,430 in 2008.
But anyone cheering that number is just like the guy jumping for joy during a lull in a storm. It might be a relief, but it’s going to be short-lived.
The 2009 number of foreclosed homes was still 21.1 percent ahead of the 7,653 foreclosures recorded two years earlier. That’s because the 2009 results were the results of a lot Mickey Mouse tinkering and technicalities that temporarily drove down final foreclosure actions. A 90-day delay imposed the prior year in Massachusetts had a ripple effect into 2009. The start of the year saw a moratorium on foreclosures by Fannie Mae and Freddie Mac, which was copied by many large lenders involved in TARP. A state judge’s ruling in mid-year sent a lot of lenders scrambling to straighten out paperwork before they could move more foreclosures ahead.
But all of those factors are fleeting. Meanwhile, the number of filings of petitions to foreclose – the first step in the process – leapt more than 28 percent in 2009. Lenders are filing their intentions to foreclose at the rate of more than 2,000 per month in Massachusetts. That’s a record pace.
Consumers are falling apart financially. Many stretched too thin to buy properties when the market was hot, expecting investment gains on rapidly-appreciating properties would bail them out. Instead, home values have sunk like a talkative mobster wearing impermeable footwear. Meanwhile, access to cash and credit has been cut off. Many have lost jobs. Others have seen their pay diminished. They simply cannot afford the homes they are in.
That means that as 2010 unfolds, the number of properties taken back by lenders is expected to grow substantially. That also means the housing market is about to be flooded with cut-rate homes as those lenders seek to liquidate their foreclosure portfolios. That’s bad news for private home-owners who are putting their properties on the market. It means competition for buyers will be much greater, and it means continued and forceful downward pressure on median sales prices.
Loan modification programs, while well-intentioned, have so far failed miserably. Accounting rules which force lenders to recognize losses on modified loans (even when the modification won’t result in any diminution of principal) mean few institutions have the stomach for permanent loan modifications. And even a “modified” plan doesn’t help when the debtor doesn’t have a job.
The extension and expansion of the Home Buyer Tax Credit program will be a boon for the real estate market through the spring. But it’s not available to buyers in the market after April. Even companies such as Re/Max of New England – which have a vested interest in being upbeat about the housing market – are forecasting a dismal sales environment after the tax credit program ends. And that isn’t even taking into account the effect a newly-invigorated foreclosure epidemic will have on this state.
Does this call for even more governmental intervention in the housing market? We don’t think so. At some stage, basic capitalism must reclaim its rightful place, unaided by bureaucratic hands. But it does mean that we must not be blinded by the light of optimism that is breaking through the storm clouds. We’ll take the respite while we can. But we must remember that there is more rough weather to come, and prepare now to survive it.
