We have all been hearing about the improved housing market — home values are up by about 30 percent since 2012, they’re selling faster, and overall demand is high. But this recovery has led to a dramatic decrease in the overall housing inventory.
But there is a hidden inventory that could promise some relief. When will it become available for sale?
Study's shows that foreclosure rates are declining and with the improved market, it would be natural to think that the impact of the housing crisis is over. But there are still some old foreclosures still in the pipeline. Years of legislation and legal delays that have been holding them back. In most cases foreclosures take up to 2 years.
Banks and lenders are starting to push the backlog of foreclosed homes that was created by lengthy judicial reviews and long foreclosure timelines into the market. In states like Florida and New Jersey, some homeowners haven’t paid their mortgage in two or three years because the mortgage foreclosure process takes so long. These are some of the homes that we will see for sale over the next year.
While it looked like foreclosure rates are declining, it is likely that these numbers will start going back up. The government’s Home Affordable Modification Program (HAMP) provided temporary relief to borrowers during the housing crisis, but that reliefs ends after five years. These payment are due to reset. This will increase the loan payments for nearly 900,000 homeowners — some of who will again find it difficult to keep up with their mortgage payments.
HAMP isn’t the only program. In the coming years, about two million modifications will be reset at higher interest rates. Many of those homes are in depressed markets with little to no equity. These resets make for an increased risk for more foreclosure inventory in all states.
The Mortgage Forgiveness Debt Relief Act also expires in 2017 and may not be renewed. This means that any mortgage relief given to borrowers will be treated as earned income for tax purposes, leaving the borrower with a larger tax bill that they will be responsible for. Click for more tax information.
A backlog of foreclosures are going to finally be coming onto the market. It looks like the foreclosure problem wasn’t solved, but delayed. You can expect REO (bank owned) listings and foreclosures to increase in the next coming years. How this impacts the real estate market largely depends on how fast these homes enter the market.
How is this going to affect the market? It could drive prices down if all of these home are put on the market at the same time. This would benefit our lower income and first time buyers. But more than likely the banks will enter these homes into the market at a slower pace so they can hold onto their leveraging power. This would mean we could be feeling the effects of the housing crisis for another 5 to 10 years.