April 24, 2018

Greenspan says, He doesn’t understand home pricing !

Alan Greenspan this morning said that when it comes to regular homes sales, that do not include Foreclosed or Short Sold properties  prices have flat lined nationwide. He went on to say that he does not understand why Foreclosed Homes and Short Sales are happening at such deep discounts to the market and actually making the average price of homes look like it is still dropping. I had to get typing here, Dear Alan, as a professional is the Fort Lauderdale Real Estate market please let me help you shed some light on your questions.

The first asnwer is simple, foreclosuers are not happening in great numbers in the best neighborhoods in town, Fort Lauderdale Real Estate Foreclosurer List, they are not on the beach (there is always an occasional exepction). These home were always in less expensive locations and continue to drive down the average price of all home sales as they move through the inventory.

Now lets discuss the more complicated issues. I hope to do so on a few fronts and maybe I will get lucky and someone of influence will read this and some light bulbs will go off. I sincerely do agree that there is no recovery to be had in this country until, the risk factor of construction is taken away, people are back to work, and the desire for housing ownership returns.

1) Banks are in processing madness. They appear to see no reason to get deals done quickly. Between insurance policies on their assets and government programs which help them along, urgency is gone. Someone has to pay for the outrageous time these hardship short sales take to process, and even though we don’t seem to understand it,  its all of us who are paying.   Part of the time factor, and failure rate, becomes priced into the asset with the “I don’t want to deal with a short sale attitude”. One example file , over a year old, has cost the bank 30% of the asset since the time they first had a chance to react, the government, you and I are picking up part of the tab. Taxes due, mortgage payments in arrears, past due maintance, dropping prices, buyers who left, bank foreclosurers of identical properties at lower prices have all hurt this asset. Solution –  place a time frame on all insurance and government programs such as HAFA  from the time a short sale offer is given to the bank, if they don’t react all programs need to disappear, if the bank does not react they should automatically waive their ability to ever seek a defiecency judgment. I will bet their ability to process would change quickly.

2) Foreclosures are selling at such a discount to the market, simply because the banks once again have gotten in the way of free markets. If the average days on market of a property in an area is 90 days and the bank tells their realtor they want it gone in 10 days ( after they have held the property for a year  and lead it into a state of ill repair) where and to whom do you think it is going to sell. It becomes a home not for an end user but for an investor, a renovator, and gets sold way under “market value”, it gets sold to a “friend of the market” for wholesale. If the property was sold on the open market with traditional neighborhood Realtors in a time frame reflective of the market, prices would certainly be higher. Prices are always higher when these homes come back on the market as normal sales 90 days later after a clean up. A very serious number to look at is the number of foreclosued  properties that are coming back on the market within 6 months as those, higher regular sales you talk about.

3) Strategic defaults – prices keep dropping – more people simply make the decision to give up as prices drop.  Its time to make sure  that foreclosure is not viewed as something easy, that will go away quickly. We spend more money in this country advertising that you shouldn’t smoke than, we spend discussing  the years of financial suffering that walking away from your home may cause. Foreclosurer is not something we should be proud of, it is just sad, and it is a hardship. I am totally sensitive to when it is the right decision, but when certain financial advisers are telling everyone to “just walk away”, as if it won’t hurt them, it simply becomes part of the problem. So where to go from here, we go to #4.

4) Encourage home ownership,  making  interest payments tax deductible, it is not enough. Use the money we are throwing at the system to Clearly Support Home Ownership in America. Take away the discussion that renting is cheaper than owning. Its time  to start thinking about what we do we encourage individual home ownership. A start, reward homeownership by making equity payments ( payment down of your mortgage) tax deductible. People who can pay additional money on their current mortgages will pump money back in to the system, and see a financial reason to keep their homes, and not walk away. Bring on depreciation deductions for primary residences, larger than the ones we give investors on the properties they rent out. Even out the playing field so Suze Orman cant  say “Walk Away“, to many callers.  Want some more ideas, ask Suze Orman ! Ask her, What would allow you to support ownership in front of your millions of viewers ?, I think she would certainly let us all know how she feels.

I dont’ have all the answers and most likely raise more questions that answers, but I do know that when people can’t see the value of building equity in their homes talking about a construction and housing recovery,  is a mis-directed conversation.