Holding Back the Foreclosure Flood

Real Estate Market Update

No doubt you have read the news recently about the Mississippi River floodgates being opened to release water into the Louisiana floodplains in order to minimize damage to the more populated areas. Absent some measure of “controlled release” the record high flood waters would inflict severe, long-lasting damage to huge market areas. Similarly, the large mortgage lenders are engaged in the same kind of management of potentially damaging levels of foreclosures. They are operating a “controlled release” of their swollen, burgeoning inventory so as to restrict the damage to the residential real estate market. The truth is, they are neck-deep in delinquent mortgages despite the numbers you see in other media sources relating to the significant monthly and year-to-date drop in new listings. One might assume that drop means we are seeing a light at the end of the tunnel and, to some extent, it may be true. However, the bankers are smart: flooding the MLS with every eligible foreclosed property would only diminish the value of those properties already on the market. They own so much of the MLS inventory right now, “opening the floodgates” would sink the prices of their currently listed assets and they’d drown in red ink.

“Where’s the life-preserver in this update?” you ask. Record low interest rates are providing the buoyancy in the market. As of this writing, FHA 30 year rates (3.5% min. down payment) are at an incredible 4.25% and Conventional 30 year rates (min. 20% down payment) are only 4.5%!  There’s the sunshine!!!