Fed projects Mass. foreclosures

And what about the inevitable "Scenario 4," where rates rise and prices fall?

Binya, I remain confused about the operation and effect of Massachusetts' 90-day moratorium on foreclosures. This will certainly clog the pipeline for a while, no? However, simply kicking the can down the road is delaying the inevitable.

Interesting. Did they cover the negative feedback loop issue? I'm guessing not from the description.

That would be the fact that foreclosures do not merely represent falling prices, they also contribute to make prices fall more - a snowball rolling down the hill and turning into an avalanche as it were.

This yet again shows why so many of us believe that prices will continue to fall until at least summer 2009, by the way.

so you are saying i should wait to buy a house?

Marcus,

That's a really good question. The most recent issue of Banker & Tradesman has an article reporting only 390 foreclosure petitions were filed in May, down from 3,327 in April. That's a clear consequence of the new law, and it will probably result in a dip in foreclosures during the summer.

The hope is that lenders and borrowers will work out their problems in the meantime, but in many cases, as the article concludes, "Mortgagees... will be ready to get on with it on the 91st day."

So we may just see a dip in the summer and a surge in the fall.

We are a long way from the end...the next storm is on the horizon. This article does a great job of explaining it.

http://www.businessweek.com/lifestyle/content/jun2008/bw2008065_526168.htm (check out the small graph on the right of the article)

I think it can still be a great time to buy if you buy correctly at the right rates and price. There are so many incredible properties at discounted rates that it can be a good time. You might until the projected "bottom" but I've found many people miss great opportunity because they're waiting for the bottom.

I agree Eddie - it is impossible to time the bottom of the RE market, just as it is impossible to time the bottom of the stock market. I think too many people got caught up in looking at houses as short term investments, when in actuality, if anything, they are the ultimate long term investments (though many disagree that they are investments at all). The biggest factor in buying a house should be whether or not you can afford it - which is why all these ARMs were such a disaster. People gambled on their properties continuing to appreciate at a 10-12% annual clip, which is simply unsustainable in the long term under any circumstances.

The people in the best position right now are the first time homebuyers. As long as you're not trying to get out from under your own house right now, this is a great opportunity to be getting into the RE market. Who cares if there are moderate declines of a few percentage points over the next couple of years? Long term, I think most people believe that the housing market will eventually improve, if for no other reason than the forces of inflation pushing prices back up again (though likely more moderately than anything we've seen this last decade or so).

The only real positive spin this whole fiasco has had will be hopefully permanent changes in these "creative financing" schemes that lenders have freely engaged in. That and the fact that people have been using their homes like ATMs is the absolute height of fiscal irresponsibility.

have been looking at homes/forclosures in ma. have considerable down payment.no debit . two good jobs making over 100,000. my wife stays home with two kids. have one car lease at 400.00 month. and don't vacation. the homes at 425,000-500,000 in reasonable nice towns need work. yearly taxes on avg $5,000-6,000.Then there is the gas problem. although this article is interesting we Americans are losing ground. sure my wife could go to work but then who raises my kids, people that don't care about them. prices need to come down alot or we will all be renting for ever. scenerio 1. mortgage 1800.00 month
taxes 550.00 month
car 400.00 month
gas/car 260.00 month
ins/food 800.00 month
roth 800.00 month
scenerio 2 rent ! somewhat cheaper but less hidden costs than a house.

Remember 1991. Housing dropped 50%

it is impossible to time the bottom of the RE market, just as it is impossible to time the bottom of the stock market

It's not about timing; it's about value. It's very clear that houses are still overpriced in most places, considering historical ratios to incomes and rent. Exactly when prices return to normal levels--or, more likely, overshoot them--is a mystery. The fact that they will return is not.

in actuality, if anything, they are the ultimate long term investments

If you mean, you should only expect a return in the long run, then yes. However, if you mean "ultimate" in the sense of "best," then no. They barely outpace inflation over the long run.

Who cares if there are moderate declines of a few percentage points over the next couple of years?

I'm not aware of anyone outside of NAR who predicts a decline of "a few percentage points." JPMorgan just predicted a national peak to trough decline of 30%, more in areas that have seen large appreciation.

The people in the best position right now are the first time homebuyers.

No, the people in the best position right now are renters. Prices are still far too high for first-timers to enter the market. If they do manage to meet the new, higher down payment requirements, they are likely to see that equity vanish in the next couple of years.

I disagree that there are many good properties available at a discount, or that first time house buyers like me are in the best position. I'm entering year 4 in my attempt to be a first time house buyer. Those sitting prettiest are those who purchased in the mid-nineties or earlier and didn't then use their house as an ATM.

Asking prices may have declined a little bit from ridiculously overpriced to highly overpriced, but that's not discounted. And the houses that tend to be in foreclosure or have fallen further from the ridiculously high peak tend to be in areas that are relatively unsafe with relatively poor schools.

As for those who can't "get out from under" their houses right now, those are either the ones who unconscionably overpaid between 2003 and 2007, or, much less likely, bought earlier and just as irresponsibly did the house-as-ATM thing. And just for the sake of argument, let's just say that over the next few years there is a 50% chance that prices will moderately rise or fall, 25% chance they will rise immoderately (yeah, right)and 25% that they will crash and not recover for a decade or more. I'm not willing to take that large 25% risk with a huge chunk of my savings and future. I make about the average household salary in Boston (a little under $100k). When I can get a home in a decent place for around 2.5 times my salary, for no more than 1.5 times my cost to rent (preferably less), within commutable range of my job and general job prospects, I'll continue to sit tight. (And continue to stew about it :))

I notice a lot of homes coming on the market on my way to work. Kind of curious because it's seems like the market is really crawling these days. I would guess some of them would be people who over-extended and just want out. I wouldn't be sleeping well if I was in that boat these days.

I'm no mathematician, but doesn't the fact that foreclosures have so far greatly exceeded the Fed's projections indicate that the peak in foreclosures will happen sooner?

There are a finite number of houses in MA, and of those a finite portion are in danger of foreclosure (i.e. Most homeowners won't allow their homes to be foreclosed on even if the value falls, because they make plenty of money to keep up with the payments).

The faster that the foreclosures occur, the faster the resevoir of potential foreclosures is depleted. Thus, the peak is reached more quickly.

How can a home lose all of its value?

I agree with a few of the posters here who mentioned that this can be a good time to buy. My wife and I bought our first home recently. As I have mentioned in previous responses on this site, we bought with 20% down and a 30 years fixed rate in the 5s. We got a very good deal on a great home. But we spent years saving and passing up other homes because we couldn't afford to put down 20%.

I think the qualifier to the phrase "bad time to buy" should be "in the same way people have been buying in recent years." If you plan to keep the home for 5-10 years and manage to save up a sizable downpayment then who cares what the market is doing in the next 3-4 years? No one can ever time the market perfectly. You are not going to be able to successfully find the bottom and buy. If you do, then you waste money in the meantime paying rent that you'd never see again as equity. Buy what you can afford to buy, when you can afford to buy it. The market will continue to change and move. Getting into home ownership is like merging onto a freeway: if there is an opportunity to safely get in, do so. You have no idea what is coming down the road later.

Quote: Most people continue to make their mortgage payments. The most obvious explanation is that they believe the value of the home will recover.

How about this explanation: most people honor their agreements. When you take out a mortgage, you are promising to pay the bank back. You aren't promising to pay the bank back only if the price of your house goes up. The bank upheld their end of the agreement and it is the ethical thing to do to uphold yours (provided you are capable of doing so - if you can't actually do it, then that is what foreclosure is for).

Let's replace "house" with "car". Most people continue to pay their car loan even though they owe more than their car is worth. Is this because they believe the value of their car will recover?

"car" vs. "house" is not a fair comparison.

A car is always a depreciating asset. (with few exceptions for collector automobiles and the like)

I love real estate. Seriously, it's a passion for me. I think most people should own their house or Apt. But there is no need to gratuitously overpay for it.

People need to realize, and keep clear, the distinction between investments and consumption expenses. People here are continuously portraying consumption decisions as investments. That does not make it so.

For the rest, re-read Marcus post #11

Nicely said: Let's replace "house" with "car". Most people continue to pay their car loan even though they owe more than their car is worth. Is this because they believe the value of their car will recover?

I think that we are losing sight of why we buy a home. It's primarily the american dream to have ownership of property and the sense of pride that a home is an investment to have a stable home for your family and generations there after. It's security, privacy, and a place for peace of mind. That's what I believe one should be thinking when purchasing a home. I am currently saving to be a first time home buyer and I am doing this so my daughter does not get used to constant moving because the rental agreement is up and the new agreement includes a percentage increase. I;m going to buy a home for stability not for what the market says the home is worth it's what I say my home is worth. Anyway I hope prices continue to go down so I can get a steal buy.

Renting is fine for single people or couples but families with children are better off buying if they buy what they can afford with a fixed rate mortgage. The cost per month of renting a place with enough room for a family is often more than a mortgage with comparable space. Rents for larger apartments or houses are very high. Being in your own home provides more stability as well.

Renting is not the best choice for everyone, even in this market.

I'm sure everyone read the article on price drops in the globe? Some quotes for those who missed it.

"U.S. home prices are only about halfway through their decline and most of the further erosion should occur this year, major bank economists said Tuesday."

"Additional declines in average U.S. home prices of around 15 percent between now and late 2009 "clearly will be a drag on consumer spending," the engine of economic growth, Hooper said"

Note, no different from what Marcus and I post.

For those who say a little drop is no problem, is 15% of the house price a little drop?