What is ahead for the housing market?
The real estate market expansion was fueled in part by loans that did not amortize (pay down the balance). They also had below market interest rates for the first few years. These loans scheduled a large increase in the monthly payment after a few years. With the price of houses increasing, buyers thought they could sell their home if they could not refinance their "Toxic loan".
When prices began dropping the sell option was not possible. During 2008 we saw countless foreclosures hitting the market. The neighborhood blight and dead real estate market are the result. There are still toxic loans that are due to adjust over the next two years. This fact makes us think the problem will continue to falter for the next two years.
Looking ahead to 2010 there may be some good news.
Loan Modification is the first option. Banks are being pressured to modify loans whenever possible. The federal government is providing banks incentives to modify loans. If the owner can not pay a regular house payment even with the terms of the loan modification terms, the banks now have two other options.
The bank may chose to accept a short sale. The home owner sells the house for less than the loan balance and the bank takes a loss.
The bank can now offer "Lease for Keys". The owner of the home may be able to pay market rate rent for the house. If so, the owner of the house will be given a lease. They can stay in the house and rent from the bank. To stay in the house under the lease terms, the owner must sign over the title to the house giving the bank ownership of the house.
The expected result of this practice is that the bank will not be in a crisis to dump distressed homes on the stressed market. The banks can hold the houses. They will have the option of releasing them into a stable market at some time in the future.
There is one other factor that is at play in today's market. The federal stimulus money is beginning to reach the Inland Empire.There is a large inventory of blighted homes on the market. The City of Fontana has money to buy, refurbish and sell homes. This project will aid low income families get into a home that the family can afford.
The Inland Empire Economic Recovery Corporation is also rehabilitating houses. It is a public/private corporation that has stimulus money backing it. This corporation will also be a player in getting blighted houses off the market.
Both of these operations are just beginning to swing into action. They should make a real difference at the low end of the market. They will help low income families get into a home without fear of being victimized by a toxic loan.
The results to expect from these changes are encouraging.
1. Now that the banks have the ability to release homes onto the market at a selected pace, the market should not experience another drop in prices. The controlled market will be stable.
2. Stimulus money is backing the low income housing component of the market, which takes the less expensive homes off the market.
3. Now the moderate income buyers can buy a home with confidence. They do not need to fear a new wave of foreclosures slamming the market.