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Foreclosure, Unemployment and Cash Crunch
Foreclosures are persisting and so too with unemployment; sales of houses have been abysmally low mainly because of a cash crunch
. Mortgage rates are at an all time low but the lenders are extra cautious about sanctioning loans. Lou Barnes of Boulder West Financial Services (lately taken over by Premier Mortgage Group) said, "In the financial markets, a lack of liquidity immediately leads to falling prices.In the real estate market, something different happens illiquid real estate markets freeze". Property cannot be readily converted into cash. For many months this tax credit offered by the Obama administration had been the only oil greasing the housing sector. But with its exit the trading in houses has come to a halt.
During the bubble years of 2006 and 2007 the prime incentive for random borrowing came from lax underwriting standards. But now the opposite is happening with too strict standards ruling; fear has paralyzed the housing sector.
The potential buyer is haunted by two fears when thinking of buying a new house unemployment and the further tumbling of house prices. David Zitting of Primary Residential Mortgages said, "A major psychological thing happens with high unemployment. Those with a job worry about whether they are going to keep that job".
Secondly, despite assurances by Lawrence Yun of National Association of Realtors the ordinary America is still worried about prices falling further they are not convinced that it has even reached the bottom as yet. In Bay Area a property that was valued at $300,000 ten years ago became worth $1 million but now it is $80,000. Realtors feel even that is too high to attract buyers.
The seller too is haunted by fear and does not want to accept the harsh reality that the house is too highly priced considering the mood of the market. To accept this truth would mean the fearful prospect of selling at a price lower than his or her mortgage dues.
There are yet foreclosed houses waiting in the wings that have not entered the stage. At some time they will and then the prices will go for another dizzy downward swing. This lot is known as the shadow inventory'.
These are the houses the banks have not foreclosed upon but whose owners are not paying mortgage dues anymore; neither have the houses been put up for sale by them. There are other owners who have had their loans modified but are finding it difficult to be current on even this modified amount; many are defaulting again or about to do so.
Foreclosure, Unemployment and Cash Crunch
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