By Paul G. Lyons
Real estate markets can be very slow to recover where there is a wait and see approach, limited financing availability and high unemployment. We experienced a market in the late 80’s through the mid 90s during the Savings & Loan Crisis that was very similar to what we are seeing today. The real estate market that we are experiencing today will recover.
The wait and see approach that we are under going is an issue that goes away when the excess inventory of distressed, foreclosed and vacant properties are no longer available. We experienced this in the return of our market after the S&L crisis. Stable home values will return when lending and employment returns to levels prior to the decline. While it is obvious that it would not be wise to return to the excessively low lending standards and financing schemes that led to the bubble, some return to easy financing must be reestablished before you see a return of real estate values.
The excess inventory of foreclosures is problematic and it is only prudent for the banks to lower interest rates on pending foreclosures even if it is a temporary reduction in the interest rate to avoid more foreclosures. This will stimulate cash flow for the banks and keep excessive inventory off the market, which are well known to drive down home values.
Some foreclosures are unavoidable when it comes to loss of employment, however. It is time for the banks to come up with an easy way to expedite low doc modifications to keep the excess of defaults off the market, stabilize business and home values and aid governments in their collection of tax receipts so they can deliver needed services.
It is also important to remember that inflation in real estate occurred as a result of the building boom with higher property taxes, putting further strain on home buyers and investors. Interest rate relief and readily available financing for homeowners, investors and businesses should be a high priority.
The general consensus of myths about putting foreclosures on the market is to let foreclosures flow and allow them to be bought up by people seeking real estate investments and affordable housing. There are several inherent flaws with this view. Listing and selling off foreclosures does not bring upside (the true bottom) to the market. What really happens is that it brings real estate markets to a snails pace. The myth that it will bring the market to an affordable level is false. The reality is that it causes market stagnation to develop, resulting in the general population becoming hesitant to either buy or sell property.
Another myth is that it lowers taxable values resulting in lower property taxes. It sounds great, but think again. Lower home values do not necessarily mean lower taxes. The tax basis in the majority of states and counties is raised to result in higher tax receipts for government entities. So while many sit on the sidelines touting kick the bums out to produce a bottom of the market, it’s important to realize that you will not be able to sell your home for what you owe. Your taxes are going to go up and the foreclosure next door will most likely be a renter paying a landlord who may or may not keep up the property and will most certainly result in a prolonged market recovery.
The housing market will not recover until excess inventory is absorbed. That is an undisputed fact! Foreclosures are saturating markets, driving home values down. I keep hearing that people should have known that there might not be an opportunity in the future to refinance the array of mortgage instruments that were available prior to the meltdown. Do we want the market to recover or not? Or do we want to take the wait and see approach, while ALL of our home equity goes down the tubes?
About the Author
Paul G. Lyons is the owner of Lyons Real Estate and Investments in Fort Worth, Texas, a firm dedicated to the investment and restoration of inner-city commercial real estate with holdings in twenty seven storefronts, 50 residential units and two businesses. His philanthropic efforts include the Masonic Lodge, Rotary International and serving on the board of his neighborhood association.