According to the Times, banks and their regulators are squabbling over how soon to write off bad mortgages. The fight (or the article about it, at any rate) is mostly over evading pay caps for bank executives, which probably tells you something about who’s still running our banks, but when they get around to real issues, the feds want bad loans written down now and the banks, to protect their books, are resisting. To the extent the barks prevail on this issue, I think we will see the housing recovery delayed, and here’s why:
I’m working with a number of buyers, all solvent all ready to buy but all unwilling to pay current asking prices (smart move). I’ve reviewed almost every spec house out there and haven’t found one that I thought would eventually sell for anything close to its asking price. I could be wrong – the builders and their agents obviously think I’m nuts, but if I’m right about only half of these houses, that’s a huge amount of inventory sitting on the market with the wrong price attached. They’ll go nowhere. If the lenders on these projects declared as non-performing those that aren’t current with the loan and forced them onto the market at, say, the amount of the first mortgage and not the builder’s dream price, people would buy them. It seems the banks won’t do this voluntarily. If the regulators don’t make them take the hit now, these house will continue to sit on the market, unsold, and buyers will continue to sit on the sidelines. Better, I think, to get the houses sold and move on.
Greenwich is not the national market, I realize, but the principle applies, whether in Las vegas or Round Hill. Unsellable inventory will gradually drop in price, dragging down the prices of comparable houses, while bloating the inventory roll and, eventually, stink the place up. Remember the bunker kill in – I don’t know, 1988?- millions of dead bunkers piled up on our shorelines, rotting in the sun and putting a real damper on sales of waterfront real estate until they finally rotted away. Something like that. First Selectman Margenot refused to use bulldozers to remove the dead fish, reasoning that God put them there and God would take them away but that decision prolonged the suffering of down-wind home owners. In the present case, I think a bulldozer would be better than waiting for God to act.