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Foreclosures: A Measure of the Market

house photographThe Bible’s King Solomon was not only a king revered for his wisdom but also for his foresight and, according to some accounts, the gift of prophecy. Certainly the King advocated prudence in all things which includes a certain ability to look ahead and make decisions based on anticipated outcomes. “Blessed is the man that findeth wisdom and is rich in prudence,” he writes in Proverbs 3:13.

Prudence and foresight are also important in the world of investing. Seeing market trends and anticipating outcomes can cut risk and improve returns. For those watching the housing industry’s wobbly comeback, one trend worth observing is the foreclosure market. But the news on foreclosures is muddy, making it difficult to predict whether these low-priced properties will be a viable part of the housing market in 2013.

According to a recent RealtyTrac report, by mid-December 2012, foreclosure starts had dropped to a 71-month low. Housing experts take this to suggest that the worst days of the housing collapse are now over.     Why the drop? These numbers refer only to foreclosure starts, not to cases already in the system. One reason lies with tighter standards imposed by mortgage lenders and better oversight of the lending process in the wake of the “robosigning” scandal and other abuses by the mortgage industry. Because of these stricter standards, fewer mortgage applications are being processed, and those that are processed are more likely to represent stronger candidates for successfully paying off the loan.

Another cause for the drop in foreclosures has to do with the aftermath of the housing crisis and the subsequent revamping of some aspects of the mortgage loan industry. Major banks implicated in the robosigning issue are now offering a variety of homeowner relief programs to help struggling mortgage holders to stay afloat and resolve issues with debt before coming to foreclosure. Refinancing programs and payment suspensions for situations such as natural disasters are now being developed to offer relief to homeowners trying to avoid foreclosure.

One of these is the holiday stay on foreclosure proceedings and evictions. Hoping to show a kinder, gentler side, the Federal lending agencies Fannie Mae and Freddie Mac, as well as many of the national and local banks that service their loans, have chosen to suspend foreclosure proceedings and evictions on completed foreclosures for the two weeks around Christmas and New Year’s Day. This move is intended to give a “break” for the holidays to homeowners who can now spend their holiday dreading eviction, rather than actually being evicted.

Whatever the intentions behind this move, the result for the housing market is a slowdown of foreclosures going up for sale now, with a projected pickup in the early months of 2013. After January 3rd, when the mortgage holiday stay ends, these cases already in process join a backlog of foreclosures from the first waves of the crisis that are moving to end game: eviction and repossession of the house by the lender. Although some of these homes, with mortgages held by Fannie Mae and Freddie Mac, may be sold in bulk lots to large investment companies, most will enter the market as individual listings available for purchase by home buyers looking for a permanent residence, or by individual investors.

The ghosts of housing crises past haunt the housing market this season, creating a confusing picture of the housing landscape for investors and homeowners alike. But for those working with Jason Hartman’s strategies for investing in income property, the combination of low interest rates and low-cost properties hitting the market after the holidays may still make 2013 a good year for prudent investors. (Top image: Flickr/MSVG)


The Solomon Success Team

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