Someone’s Misfortune, Someone Else’s Opportunityby Tim Manni
The latest foreclosure numbers are down right ugly. According to the Mortgage Bankers Association (MBA), over 13% of the nation’s home loans were either delinquent or had entered into foreclosure during the second quarter of this year. The MBA’s numbers are the highest in their 37-year history, after surpassing the 12.1% rate recorded in the first quarter of 2009.
These dismal numbers are no longer the result of subprime loans or other confusing or deceptive loan products or practices. The latest victims of the ongoing foreclosure crisis are prime borrowers who have been ravaged by the recession. Rising unemployment numbers are taking foreclosures right along with them.
However, as one portion of society is suffering at the hands of the real estate market, another benefits. Existing home sales rose 7.2% in July, a level 5% higher than a year ago, according to the National Association of Realtors (NAR). This is the first time in five years that the statistics has risen for four straight months.
What Explains This?
First-time homebuyers are entering the market at a steady clip, drawn in by improving affordability — a condition made possible by the downward pressure on home prices that foreclosures produce. We don’t think it’s a coincidence that distressed home sales made up 31% and first-time homebuyers 30% of July’s sales figure.
While the $8,000 tax credit has been a huge catalyst for first-time homebuyers, it has in turn allowed repeat borrowers who have sold their home to buy again:
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the first-time buyer tax credit is working. “In addition to first-time buyers, we’re also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they’re also freeing some existing owners to sell and make a move,” he said.
“Perhaps most importantly, the market’s tight credit conditions are producing a group of very responsible borrowers into the marketplace and promoting a more stable housing market for the future,” explains HSH VP Keith Gumbinger.