(The Board of Realtors is closed today, so no local news)
How will the moratorium affect home prices? This guy says it will temporarily raise prices because inventory will shrink, then, when it ends, we’ll see a flood of real estate return to the market and prices will fall. His advice? Sell now.
I won’t say he’s wrong, because I think that’s the most likely scenario myself. But if this mess runs deeper than just bad paperwork in the foreclosure process – for instance, if the original promissory note has gone missing, or fraud in the loan itself is discovered, then the moratorium could drag out for years. The average loan foreclosed on, I read this weekend, is a year-and-a-half overdue. No payments in 18 months. So that’s no income to banks and, for those who securitized them and sold them to bond holders, no income and an obligation to keep paying on those bonds. That sounds like a recipe for more bank failures.
Will the banks really dump their shadow inventory all at once when the moratorium is finally lifted? They may be so desperate by then that they’ll have no choice. So far though, at least here in Greenwich, they’ve been resisting that temptation, even the weakest banks, because they know they’d just increasing their losses. If the moratorium is lifted quickly, I’d expect the dribble down approach to be resumed.
But only if it’s lifted quickly, and that’s looking increasingly dubious. The politicians are wading into the mess – Dodd has called for hearings on November 17th, for instance, and despite economists almost universal opinion that the market needs to be cleared, and cleared quickly, I don’t expect Congress to anything sensible – 200 hundred years of tradition backs me up on this.
And then we have the other set of politicians, the states attorneys , forty of whom are beginning their own investigations. Whoo boy.
I repeat my advice of last week. If you’re a troubled borrower and have been considering a short sale, now’s the time to try it. I suspect that the banks who only last month were ignoring people like you, will soon be glad to listen.
UPDATE: here’s a live report from Florida, where no one knows, or can prove, who owns what. Whoo boy.