Monday, May 23, 2011

Bank-owned real estate a threat to recovery

Today's New York Times has an article that explores the risk to any real estate recovery posed by the nearly 900,000 homes that are owned around the country by banks. These properties were all the subject of foreclosure auctions at which the foreclosing lender was the high bidder. The concern is that if all of these properties are all simultaneously dumped on the market at "priced-to-sell" prices, it could drive down values even more, creating a new cycle of foreclosures. Representatives of some of the larger real estate-owning financial institutions all assert that such a rapid sell off would also be against their own economic self-interest because they want to maximize the amounts received when these homes are sold. Still, external factors could accelerate the intended pace of sales and inadvertently cause the contemplated problem.

1 comment:

Craig H said...

I've mentioned this opinion before, but it seems appropriate to repeat it. Letting the market find its own level helps as many people as it supposedly might hurt, and I'd further observe that it can't hurt anyone happy with their home, and in position to continue their mortgage payments on it.

Foreclosures are driven as much by means as anything else, and the coincidence of low values matters much more to prospective buyers than it ever does to distressed sellers. First of all, it's hard to imagine *lower* prices increasing the urge for homeowners to duck out on their mortgages, as, if you're underwater an inch or a yard or a mile for that matter, it's all the same--zero equity is zero equity.

Better and more promising is the situation for those frozen out of the home-ownership market because of artificially high prices that are maintained by banks sitting on their foreclosed properties. Every month that drags on without those properties released to the market, is another month that those would-be homeowners are cheated out of their fair shot at the dream of owning their own home.

Frankly, I see no problem with a housing price collapse from the point of view of the home-buying and home-owning public. Yes, the banks would take a beating, but observing their criminal complicity in the current mess, I hardly feel sorry for them in this.

Let the market be free!