With mounting indicators clearly showing that the so-called housing recovery was just an illusion, and many housing industry pundits who formerly touted the validity of said recovery now recanting their views, there should be no doubt that we are headed for another/further housing downturn.
With over three decades of housing and mortgage servicing experience in a variety of management positions behind me, I have witnessed first-hand several housing cycles in my lifetime. In fact my father was a builder and real estate broker for many, many years. I literally grew up in this business. I am not only a keen observer but also an active participant in this vital industry. With respect to the headline above I offer the following:
- There remains a "shadow inventory" of properties that have been foreclosed on but have not been released into the marketplace which has helped to artificially drive up home prices.
- Foreclosure backlogs remain in states that have judicial foreclosure processes.
- The dramatic influx of institutional investors buying up pools of REO properties to turn them into rentals also contributed to rising home prices (but now these institutional investors are selling off part of their portfolios because their business model was flawed by not taking into consideration of decreasing home values/prices and their vacancy rates are rising).
- Fewer and fewer first-time buyers are entering the market due to more stringent mortgage lending guidelines.
- The "affordability" (or lack thereof) has stalled the market and in some areas prices are dropping.
- Mortgages that were modified under the Treasury Department's HAMP program are beginning to be recast and the ensuing higher interest rates will force more home owners into foreclosure.
- The proliferation of FHA loans has created a scenario where these low-interest loans have become the "new subprime" loans.
- The federal government is encouraging Wall Street to again create mortgage-backed securities.
- Some lenders are lowering their FICO score requirements.
- The federal government is "encouraging" lenders to make loans to low-income buyers...again.
- Homeowners are once again using their "equity" as a kind of an ATM once again, as pointed out in The Wall Street Journal article of July 14 by AnnaMaria Andriotis, "More Homeowners Are Tapping Their Home Equity."
- There has been no effort to create decent-paying jobs in America—Without them, the economy cannot grow and the housing industry will remain stagnant or worse (despite what some "celebrity" economists say, as the housing market goes, so goes the general economy...this is fact, not fiction).
According to an article published in a recent Inman News story, "A majority of North American mortgage bankers fear another real estate bubble is forming," a recent study conducted by FICO found that 56% of Canadian and American respondents who were polled who are directly involved in mortgage lending "expressed concern that an unsustainable real estate bubble is inflating." The article pointed out that the housing market is "bifurcated" because there is strong price growth in many markets pushing "total homeowner equity in the U.S. to its highest level since late 2007, even as 6 million people struggle with underwater loans."
I concur, of course, that this doesn’t feel like a housing market "in recovery." To be sure, there is mounting concern by many lenders about the growing risk associated with residential mortgages.
On top of this you can add the contraction of the U.S. economy in 2Q of nearly 3%, clearly demonstrating the weakness of the American economy. There is a growing majority of people in our country today who believe there is no leadership in Washington on either side of the aisle who are either capable of dealing with economic issues such as the housing market, or they are simply preoccupied with getting reelected.
Because of this dearth of leadership, the gap is continuing to widen between the beleaguered middle class and the top income earners in this country. And more and more of the tax burden is befalling their shoulders to support a growing list of entitlements bestowed on non-producers. Many see this situation as becoming intolerable, much the same as it did in the days leading up to the signing of the Declaration of Independence. This does not bode well for our Nation. That is no illusion.
Lynn Effinger is a veteran of more than three decades in the housing and mortgage servicing industries. He currently serves as executive vice president of ZVN Properties Inc.