CHESSNOID

Foreclosures are still on the rise and continue to break inventory records.  The state I live in (California) has been especially hit hard and is still taking major hits every month.

According to CNN.Money:

In some areas virtually all sales are REOs. Four out of every five listings in Stockton, Calif. for instance are foreclosures.

“The traditional market is on hold,” said Brian Mikelbank, a Cleveland State University associate professor of urban studies. “Sellers are simply not selling,” he said.

Having a large number of REO properties for sale in a community hurts regional prices in three different ways, according to Dan Immergluck, a Georgia Tech professor who has testified before Congress on the impact of foreclosures on home prices.

First, a jump in REOs is a supply-side shock; markets have trouble handling such a sharp increase in inventory. Plus, vacant foreclosures often fall into disrepair, blighting neighborhoods and attracting crime. Finally, although appraisers generally try to disregard REOs when searching for comparable home listings, they just can’t do that when foreclosures account for 40% or 50% of the market.

Before the stock market tanked, the mortgage crisis was unfolding. As the dominoes fell from the aftermath, other industries kept falling. I believe once we see foreclosure inventories flatten, we will see a true bottom for the real estate and stock market. No one knows how long this will take, but I would guess at least a year or possibly longer.

There is a second wave of mortgage problems on the horizon with resets of rates on adjustable loans. These loans are not the same as the sub prime loans that caused the housing bubble to bust. Depending how the new administration and the lenders handle this situation may determine how long we stay in the recession.