While most housing analysts believe there will be no double-dip recession, the number of foreclosures will continue to hound the industry in 2010.
“The only guys predicting a double-dip recession are guys who want to make a name for themselves,” said John Tuccillo, national residential consultant and the former chief economist of the National Association of Realtors. “If they can call this one right, everybody will remember them. But, in reality, it will be a long, grinding, slow recovery. Banks are sitting on too much cash now for a double dip, and I don’t think most people see that happening.”
Lawrence Yun, the present NAR economist, expects the $8,000 first-time homebuyer credit extension to continue to stimulate the lower end of the market, influencing the entire housing ladder. As more first-timers move in, others move up.
About 47 percent of all home sales in 2009 involved first-timers, up from 41 percent in 2008 and 36 percent in 2006. Yun believes that number will continue to rise because of an estimated 16 million renter households making enough money to qualify to buy homes. Demand should remain strong next year and restore confidence for all potential buyers.
“I don’t think the fear factor will be at play in 2010,” Yun said. “We’re seeing price stabilization on a month-to-month basis.”
Yun’s numbers show the pool of first-time buyers is 5 million more than in 2000, and thus represents pent-up demand. In his opinion, if the credit continues to have the same impact on demand in 2010, overall house prices will rise 3-5 percent next year and sales will be up “conservatively” 15 percent.
It remains to be seen if the first-time home buyer program – plus the new $6,500 credit for existing homeowners – will generate enough energy to eliminate the fear factor next year. People simply postpone a buying decision if they believe home prices will continue to go down.
The stewing pot is the number of foreclosures heading to the market. Some lenders, deluged with active foreclosures, are way behind with some borrowers who are 16-20 months behind in their payments. These loans, called shadow loans, have yet to hit the market as foreclosures. Yun predicts 2.2 million foreclosures next year; ReMax Real Estate is anticipating approximately 5 million, while another study suggests 7 million.
To compound the foreclosure problem, the loan modification program, or “Mods in a Box,” that puts borrowers into affordable, long-term mortgages while adjusting returns for bankers and investors compared to the return on a foreclosure, has not been as successful as hoped. The latest survey shows more than 40 percent of the loans that were modified have headed back into default.
That statistic comes as no surprise to some economists like Stewart Title’s Ted C. Jones.
“It’s real simple,” Jones said. “If you are a person of such a character and are not making your loan payments prior to the mod, even with the reduction you still will not make your payments.
“Leopards do not change their spots and zebras do not change their stripes.”
The FDIC initiated a systematic and streamlined loan modification program for delinquent primary-residence borrowers at IndyMac Federal Bank. It was hoped that by setting mortgage payments that were both affordable and sustainable, the bank could expect to reduce future defaults, improve the value of the underlying mortgages, and cut servicing costs. The results did not meet expectations.
The outcome of Mods in a Box does not bode well for another new Fannie Mae program. The government-controlled company, through its “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that. According to Jay Ryan, Fannie Mae vice president, the program will “eliminate some of the uncertainty of foreclosure, keep families and tenants in their homes during a transitional period, and help to stabilize neighborhoods and communities.”
Unfortunately, I don’t think Fannie Mae is going to get many takers. I believe that many delinquent property owners have given up on retaining the home but are riding out the whole succession of forebearance, postponement, and rental plans to maximize their income by not paying while residing in the home.
Let’s hope that fear factor is quickly eliminated in 2010. Let’s hope people will regain the confidence – and guts – to make their payments or seek a realistic, honest solution.