Foreclosure rates are declining across the Southwest. Lenders are slowing foreclosures because they want house prices to bottom and start going up due to a lack of distressed supply on the MLS. This would be a natural occurrence once shadow inventory is eliminated, but right now, this slowing of foreclosures is a contrived policy of a cartel desperately hoping they can force prices to move higher. If foreclosures were declining because lenders were out of delinquent mortgages to foreclose on, we would all be celebrating the housing market recovery. However, lenders are not out of delinquent mortgage squatters to boot out of the houses they are not paying for. In fact, lenders have slowed their foreclosure rates so much, they are no longer keeping up with current new delinquencies. As a result, shadow inventory is growing again.
It is difficult to imagine how house prices can put in a durable bottom with millions of delinquent mortgages yet to be processed. The federal reserve and government regulators have done everything possible to create conditions favorable to lenders. Zero percent interest rates lower the cost of capital to banks to near zero enabling them to sustain billions in non-performing loans on their books without bankruptcy. Suspension of mark-to-market accounting rules allows lenders to pretend their bad loans are still worth face value to give the appearance of solvency. Both of these measures have one thing in common; they buy time. Ultimately, neither measure will cause house prices to go up. Low interest rates make housing much more affordable which induces buying, but only improved credit conditions, lower unemployment, and higher wages will make house prices go up.
The market-has-bottomed meme currently touted by every major media outlet is a concerted effort to improve buyer sentiment and induce people to enter into a transaction that may not be in their best interest. Affordability is currently quite good in nearly every housing market due to the low interest rates — and that is a good reason to buy — but sheeple are so accustomed to buying for appreciation that the market-has-bottomed meme must be pounded into the public’s heads to knock people off the fence. A secondary benefit of a widespread belief in future appreciation is a reduction in strategic default.
Rising prices through artificially reduced foreclosure rates has a price. Lenders hope rising prices will curb strategic default, but they must face the reality that reducing foreclosure rates increases strategic default because borrowers know they get a free ride. In the latest Mortgage Bankers Association survey, the increase in delinquency rates is being blamed on a weak economy. I don’t think that’s the reason. The economy is not strong, but unemployment is still declining. The increase in delinquencies is not due to people losing their jobs. It’s much more likely the increase in delinquencies is caused by strategic default.
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Proprietary Irvine Housing News home purchase analysis
$575,000 …….. Asking Price
$325,000 ………. Purchase Price
8/25/1989 ………. Purchase Date
$250,000 ………. Gross Gain (Loss)
($26,000) ………… Commissions and Costs at 8%
$224,000 ………. Net Gain (Loss)
76.9% ………. Gross Percent Change
68.9% ………. Net Percent Change
2.5% ………… Annual Appreciation
Cost of Home Ownership
$575,000 …….. Asking Price
$115,000 ………… 20% Down Conventional
3.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$460,000 …….. Mortgage
$108,093 ………. Income Requirement
$2,104 ………… Monthly Mortgage Payment
$498 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$144 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$46 ………… Homeowners Association Fees
$2,792 ………. Monthly Cash Outlays
($332) ………. Tax Savings
($705) ………. Equity Hidden in Payment
$137 ………….. Lost Income to Down Payment
$92 ………….. Maintenance and Replacement Reserves
$1,984 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$7,250 ………… Furnishing and Move In at 1% + $1,500
$7,250 ………… Closing Costs at 1% + $1,500
$4,600 ………… Interest Points
$115,000 ………… Down Payment
$134,100 ………. Total Cash Costs
$30,400 ………. Emergency Cash Reserves
$164,500 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
Cost of Ownership AnalysisAre you ready to make an offer, but you are worried the cost of ownership is really more than you can afford? Don't make a mistake that might cost you the family home, your life savings, and your good credit! Get the advice of a seasoned professional. Contact us at firstname.lastname@example.org today! We produce detailed reports showing the cost of ownership based on the most likely transaction price and current financing terms. You will know how much you will spend each month in out-of-pocket expenditures and the true monthly cost of ownership factoring in tax deductions, loan amortization, and opportunity costs on your down payment. In addition, we show you how this cost compares to a rental of equal quality to make sure buying is the right decision for your situation. An OC Housing News Cost of Ownership Analysis will calm your worries and give you peace-of-mind. Let us show you the way! Reports are available for properties in the Southern California MLS coverage area, and are generally delivered within 24-72 hours. If you wish to receive multiple properties, please contact us at email@example.com, and we will prepare the reports for you.
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Nearby ForeclosuresGain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."
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