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Friday, September 11, 2009
US treasury Sees Millions More Foreclosures
So we have an insiders view that foreclosures will continue to increase. We also have the readily available news that unemployment keeps increasing. Can somebody please explain to me how the real estate market is improving in spite of this these things? To me, an improving real estate market defies logic and reason. I see no evidence that the real estate market will improve anytime soon.
Be Wary of So Called "Good News"
Here is why that statement is foolish. Sales are a subset of Inventory (you cannot have more sales than there are homes for sale). If Inventory increases at a higher rate than sales and Inventory is a larger number to begin with then it is simple math to say that the overall number of homes for sale (i.e. Inventory) actually INCREASED. The article spins this by using July's home sales number and then comparing that to the new Inventory level to conclude that total Inventory remained the same as June at 9.4 months supply. Now ask yourself, is July a peak selling month? If so, does it make sense to divide the new Inventory figure by a peak sales figure and state that Inventory has not increased? Of course it doesn't. Therefore, mark my words, the actual supply of homes for sale (i.e. Inventory) has indeed increased which is bad news for the real estate market.
My Real Estate Market Thoughts of the Day
The last time the real estate market melted down (think late 80's/early 90's) it took 7 years for homes to regain their losses. This meltdown is far worse because it is not just due to real estate over development/over building. It was caused by debt. Plain and simple. That is why the folks in Washington cannot fix this problem - you cannot fix a problem caused by debt with more debt. It defies logic and reason. The facts are that even at their current reduced levels, home prices are still out of line with incomes when compared to historical trends. Therefore, contrary to NAR homes are not actually affordable (Side note: I really cannot stand the NAR Home Affordability Index. Since when did Realtors become used car salespeople hawking homes by pushing the monthly payment instead of the price of the home?).
The reason loan modifications will not work is that they do not address the core problem: mortgage balances are too high relative to the market value of the homes. Many homeowners are actually now underwater (i.e. mortgage balances exceed the value of their home). According to a recent Deutsche Bank report, by 2011 about 48% of all US mortgages will be underwater. Since being underwater is now the #1 statistical driver of defaults (not credit scores) you can bet on high foreclosure rates for years to come.
Since the entire economy was built on consumer spending, and that consumer spending was fueled by debt, and that debt is no longer available you can be sure that when things do actually turn around unemployment will still remain relatively high with a likely range of 6-8% as opposed to the 4-5% range we enjoyed a few years ago. Based on the persistent debt problem and the long term unemployment problem I just do not see how the real estate market will recover anytime soon.
This whole thing is sadly comical. You have nonsense from NAR and the mainstream media about how the real estate market is turning a corner and recovering yet foreclosures and unemployment keep increasing. The US real estate market has never recovered under such circumstances and this time will not be the exception. Almost every day I fell like screaming "STOP THE NONSENSE." If our policy makers would just let housing prices decline to their normal (historical) sustainable levels and get rid of the FHA loans, other low/no down loans, ARM loans and other artificial financing not only would this type of problem never happen again, but the social engineers in Washington would not have to worry about "affordable housing" since housing would in fact ALREADY BE AFFORDABLE. Sometimes the answer is just plain old common sense. I predict that values will continue to fall rapidly through 2011 (when the large wave of Option ARM foreclosures ends) and then continue to decline gradually until the foreclosure rate reduces to normal levels and the unemployment rate reduces back down to a more realistic 6-8% mentioned above. At that point real estate values will recover at the normal 4-7% per year.
Tuesday, September 1, 2009
Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in August 2009
Active Listings
- Murfreesboro TN -109 out of 1,322 Active Listings (or 8.25%) are shown as Short Sale or Foreclosure listings.
- Smyrna TN - 51 out of 389 Active Listings (or 13.11%) are shown as Short Sale or Foreclosure listings.
- LaVergne (or La Vergne) TN - 59 out of 291 Active Listings (or 20.27%) are shown as Short Sale or Foreclosure listings.
- Murfreesboro TN -32 out of 242 Pending Sales (or 13.22%) are shown as Short Sale or Foreclosure listings.
- Smyrna TN - 11 out of 60 Pending Sales (or 18.33%) are shown as Short Sale or Foreclosure listings.
- LaVergne (or La Vergne) TN - 29 out of 61 Pending Sales (or 47.54%) are shown as Short Sale or Foreclosure listings.
For Murfreesboro and Smyrna the % of Pending Sales that are Foreclosures and Short Sales remained about the same as last month, but for La Vergne the % increased from 34% to 47.54%. While the real estate markets in Murfreesboro TN and Smyrna TN are definitely hurting and prices are declining, the La Vergne real estate market is in really bad shape.
Prime Mortgages Make Up One Third of Foreclosure Actions
Here is my synopsis of the real estate market based on the information above and other information.
- The most financially responsible borrowers (prime mortgagors) are hurting. Even large down payments are not enough to counter the huge price declines. More homeowners underwater = more foreclosures.
- Foreclosures are increasing in general. This will cause more price declines.
- While the "Fab 4" (California, Florida, Arizona and Nevada) are still the kingdoms of foreclosure and prices will surely continue to fall in those markets, the decrease in % of total foreclosures nationwide from 46% to 44% while overall foreclosures increased means that foreclosures in other states increased at a higher pace that the "Fab 4" states. This means prices will decline nearly everywhere.
- More distressed homeowners will cause more people to try to rent out their homes. Until prices decline to a point where monthly rents exceed total monthly housing payments prices will continue to decline. Rampant foreclosures will make sure prices actually head below this normal equilibrium.
- Government meddling (expanded FHA mortgages, tax credits, etc.) has not and will not work to save the real estate market. The market is correcting itself to sustainable levels. FHA mortgages are now failing at alarming rates. Tax payers will once again have to foot the bill for regulatory incompetence. It seems that very few people are stating the truth about the real estate market. That is that high housing prices are bad for people (especially lower income people) and high commercial real estate prices are bad for business, which is in turn bad for job growth. Also, real estate has never (until the last few years) been the driver of the economic bus. It has been the passenger, meaning that economic growth (and the resultant business, job and income growth) caused housing prices to increase and new construction to increase. Not the other way around. Any attempt to work in reverse logic = insanity.
Wednesday, August 19, 2009
TransUnion.com: Mortgage Loan Delinquency Rates Rise
The Analysis section of the release reads "In its first quarter analysis, TransUnion reported a potential positive sign in mortgage delinquency rate trends. For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency showed a decrease," said FJ Guarrera, vice president of TransUnion's financial services division. "Now, with the release of second quarter results, we see even more deceleration in mortgage delinquency, an indication that the mortgage market is beginning to stabilize." "There are several complementary economic statistics at the national level to support this guarded optimism, such as the increase in consumer confidence in the second quarter. As for the labor market, although unemployment had continued to rise through the second quarter, July figures for unemployment insurance were lower than expected. Furthermore, recent figures from the government show the unemployment rate actually dipping to 9.4 percent nationally in July. These encouraging economic signs, coupled with a decrease in the rate of mortgage delinquency growth, suggest that we may have seen the worst of the recession. This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," continued Guarrera.
Frankly, I find TransUnion's rosy views comical. First, unemployment only fell to 9.4% in July due to nearly 500,000 being removed from the unemployment figures not because they found a job, but because they UNEMPLOYED TOO LONG! Also, there is no way that the mortgage loan delinquencies have turned a corner. With unemployment continuing to rise, increasing numbers of homeowners owing more than their homes are worth (i.e. underwater homeowners) and the wave of ARM mortgages coming due in May 2010 you can absolutely bank on increasing foreclosures and short sales. There is just no way around it. The bottom is something we have yet to see.
Thursday, August 13, 2009
RealtyTrac: U.S. Foreclosure Activity Up 32% from July 2008 and 7% from June 2009
U.S. Foreclosure Market Data by State – July 2009
|
| Properties with Foreclosure Filings | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
State Name | NOD | LIS | NTS | NFS | REO | Total | 1/every X HU (rate) | %? from Jun 09 | %? from Jul 08 | |
-- | U.S. | 62,939 | 71,565 | 104,830 | 33,557 | 87,258 | 360,149 | 355 | 6.74 | 32.32 |
33 | 0 | 0 | 1,630 | 0 | 452 | 2,082 | 1,026 | -23.34 | 141.25* | |
24 | 3 | 0 | 266 | 0 | 102 | 371 | 761 | 76.67 | 79.23 | |
3 | 2 | 0 | 14,120 | 0 | 5,572 | 19,694 | 135 | 16.99 | 47.52 | |
21 | 104 | 0 | 1,319 | 0 | 828 | 2,251 | 572 | 35.03* | 110.77* | |
2 | 50,917 | 0 | 35,802 | 0 | 21,385 | 108,104 | 123 | 6.99 | 49.55 | |
9 | 5 | 0 | 3,947 | 0 | 1,536 | 5,488 | 388 | -4.12 | 2.08 | |
29 | 0 | 1,084 | 0 | 190 | 295 | 1,569 | 917 | 7.84 | -22.10 | |
37 | 0 | 0 | 0 | 226 | 72 | 298 | 1304 | -12.61 | 125.76 | |
| 267 | 0 | 219 | 0 | 35 | 521 | 546 | 24.94 | -6.80 | |
4 | 0 | 35,227 | 0 | 14,502 | 6,757 | 56,486 | 154 | 6.78 | 23.11 | |
7 | 1 | 0 | 7,616 | 0 | 3,519 | 11,136 | 356 | -20.59 | 10.68 | |
15 | 186 | 0 | 481 | 0 | 323 | 990 | 512 | 40.23 | 332.31 | |
6 | 1,290 | 0 | 1,051 | 0 | 150 | 2,491 | 253 | 32.43* | 166.13* | |
8 | 0 | 6,770 | 0 | 4,060 | 3,694 | 14,524 | 361 | 34.53 | 62.92 | |
17 | 0 | 1,015 | 0 | 1,881 | 2,290 | 5,186 | 536 | -6.86 | 8.43 | |
43 | 0 | 0 | 227 | 0 | 374 | 601 | 2,212 | 7.32 | 20.68 | |
30 | 0 | 183 | 0 | 408 | 728 | 1,319 | 925 | 37.68 | 94.83 | |
39 | 0 | 405 | 0 | 488 | 341 | 1,234 | 1,545 | 9.30 | 0.65 | |
40 | 0 | 6 | 0 | 928 | 183 | 1,117 | 1,664 | -23.07 | 9.83 | |
41 | 0 | 138 | 0 | 212 | 57 | 407 | 1,712 | 39.38 | 59.61 | |
11 | 0 | 3,521 | 0 | 633 | 998 | 5,152 | 450 | 66.19 | 65.98 | |
16 | 0 | 3,548 | 0 | 1,049 | 517 | 5,114 | 532 | 58.77 | 43.09 | |
19 | 1 | 0 | 2,695 | 0 | 5,561 | 8,257 | 548 | -39.32 | -28.76 | |
20 | 12 | 0 | 2,266 | 0 | 1,847 | 4,125 | 559 | 23.80 | 146.86 | |
45 | 0 | 0 | 354 | 0 | 124 | 478 | 2,625 | -36.69 | 151.58* | |
27 | 5 | 0 | 1,729 | 0 | 1,441 | 3,175 | 834 | 2.02 | -9.60† | |
47 | 0 | 0 | 2 | 0 | 88 | 90 | 4,839 | 45.16 | -36.62 | |
46 | 0 | 164 | 0 | 5 | 26 | 195 | 4,004 | 30.87 | -70.45 | |
1 | 7,139 | 0 | 7,833 | 0 | 4,563 | 19,535 | 56 | 4.11 | 94.18 | |
31 | 0 | 0 | 611 | 0 | 12 | 623 | 954 | 42.24 | -31.01 | |
18 | 0 | 4,210 | 0 | 1,505 | 752 | 6,467 | 541 | 49.25 | 39.92 | |
32 | 0 | 479 | 0 | 270 | 128 | 877 | 983 | 23.52 | 61.21* | |
38 | 0 | 4,613 | 0 | 871 | 470 | 5,954 | 1,334 | 22.76 | -3.45 | |
36 | 1,120 | 0 | 756 | 0 | 1,552 | 3,428 | 1,203 | 7.97 | -20.33 | |
48 | 0 | 1 | 0 | 26 | 23 | 50 | 6,211 | 56.25 | -23.08 | |
12 | 0 | 5,062 | 0 | 3,032 | 2,927 | 11,021 | 460 | -2.05 | -18.10 | |
35 | 595 | 0 | 522 | 0 | 420 | 1,537 | 1,056 | 18.69 | -11.05 | |
10 | 29 | 0 | 2,463 | 0 | 1,113 | 3,605 | 446 | 15.80 | 84.40 | |
34 | 0 | 1,869 | 0 | 1,805 | 1,642 | 5,316 | 1,030 | 7.59 | 27.36* | |
28 | 0 | 0 | 17 | 0 | 488 | 505 | 893 | -44.63 | 2.23 | |
26 | 0 | 1,209 | 0 | 484 | 735 | 2,428 | 833 | 44.01 | 82.15* | |
42 | 0 | 60 | 0 | 56 | 48 | 164 | 2,178 | 45.13 | 446.67* | |
22 | 0 | 0 | 2,263 | 0 | 2,309 | 4,572 | 596 | -2.20 | 0.15†† | |
25 | 24 | 0 | 7,194 | 0 | 4,859 | 12,077 | 781 | 0.45 | 16.64 | |
5 | 1,234 | 0 | 1,728 | 0 | 732 | 3,694 | 250 | 6.42 | 93.30 | |
50 | 0 | 0 | 0 | 0 | 11 | 11 | 28,312 | 0.00 | 120.00 | |
14 | 5 | 0 | 3,927 | 0 | 2,474 | 6,406 | 511 | 23.48 | 11.51† | |
13 | 0 | 0 | 3,632 | 0 | 1,738 | 5,370 | 511 | 14.79 | 94.42* | |
49 | 0 | 0 | 119 | 0 | 20 | 139 | 6,350 | 21.93 | 265.79 | |
23 | 0 | 2,001 | 0 | 926 | 890 | 3,817 | 671 | 8.10 | 86.74* | |
44 | 0 | 0 | 41 | 0 | 57 | 98 | 2,473 | 16.67 | -26.32 |
* Actual increase may not be as high due to data collection changes or improvements
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008
U.S. Foreclosure Rates Heat Map – July 2009
A US Foreclosure Rates Heat Map for July 2009 is below (courtesy of RealtyTrac). As you can see, many counties in Tennessee experienced high rates of foreclosure activity in July 2009. Although the map is small (and difficult to tell for sure), it appears that some of the hardest hit counties are Davidson, Williamson and Rutherford. Rutherford County TN appears to have one of the highest foreclosure rates in the entire the state of Tennessee.
After the RealtyTrac press release was issued, a Bloomberg article, U.S. Foreclosure Filings Set Third Record-High in Five Months, obtained additional information from the following real estate sources and experts.
- National Association of REALTORS (NAR) - The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter of 2009, the most in records dating to 1979.
- Zillow - Almost one-quarter of U.S. mortgage holders are now underwater (i.e. they owe more in mortgage debt than their homes are worth).
- Stuart Gabriel (director of the UCLA Ziman Center for Real Estate in Los Angeles) - “There are a slew of factors showing fundamental weakness on the demand side: tighter underwriting, job loss, investors who’ve been badly burned. We have not seen the bottom of the housing market.”
- Diane Swonk (chief economist at Chicago-based Mesirow Financial Inc.) - “We’re in a deep hole. There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy. It has been more profitable to put a home in foreclosure than restructure the loan. The only thing that helps is forgiveness of principal, and there is little willingness to do that.”
- Continued job losses.
- More and more homeowners underwater.
- Massive government debt which will result in higher interest rates.