Home Buying in Tahoe City>Question Details

Tom C, Other/Just Looking in 92506

Does anyone know if the experts expect the value of homes to increase in the coming year? I took a big loss in the value of a condo I purchased two

Asked by Tom C, 92506 Sat Sep 12, 2009

years ago. I would have been better off just renting during the last two years.

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Dianne Hicks (951) 514-5709’s answer
Tom
This is an area specific question. I would suggest you look under the Trulia pros and contact 3 - 5 personally and ask them what has been happening and where do they see it going. When you contact them personally they will not know what the other said so you can gauge the answer a little better. That will give you a better idea of where you stand.

In this market, no one should buy unless they plan to be there for quite a while. As Barbara stated it is a long term investment especially with everything that has gone on. It will however recover but it is definitely going to take some time to do so.

Kindest Regards,
Dianne Hicks
Web Reference: http://www.di4homes.com
0 votes Thank Flag Link Mon Jan 11, 2010
Tom,
Real estate is a long term investment that is more than an just an investment for the 'NEXT YEAR'. Profit or loss is only truly recognized when you sell that asset. Did you sell the condo? Did you recieve tax benefits for owning the condo? Did you like living there? Each individuals situation is different and let's hope the values come back for all property owners, whereever they may be.
Best regards,
Al Colhoun
0 votes Thank Flag Link Mon Jan 11, 2010
Hi Tom, to answer your question directly, "No." We have some major issues to vet.

Jobs
The lynchpin of any housing recovery is jobs. With double-digit unemployment looming in just about every corner of the US and economists talking about a "jobless recovery" I'm really not getting a "warm fuzzy" feeling. See: http://www.chartoftheday.com/20090904.htm?T

Mortgage Financing
Wall St. has to start trusting that mortgages are worth investing in again. Guidelines are certainly tighteting towards that end; however, most of the buying activity is from the FED. On 8/12/09 the FED announced plans to conclude its purchasing of up to $1.25 trillion of agency mortgage-backed securities (MBS). As of 9/11/09, The FED had reached the $849B mark for MBS purchases. When the FED stops buying MBS, we should see about a 1% rise in mortgage rates. This will not help.

REO Shadow Inventory
A backlog of NODs means a backlog of foreclosures...
http://docs.Steven-Anthony.com/REO-ShadowInventory.pdf

Loan Modifications
One might hope that Loan Modifications will help to reduce REO Shadow Inventory. Unfortunately, I don't see that right now either. Loan Modifications appear to NOT be in the Lender's best interest. As of 7/13/09, according to http://www.washingtonpost.com/wp-dyn/content/article/2009/07… Making Home Affordable has only offered 270,000 modifications to borrowers (there are plenty of stories about non-effectual loan mods being offered in the beginning of the program, but this now seems to be improving). The MHA target is 4M loan mods, which at this rate would take us about 14 years to reach.

Why don’t lenders modify more loans? A MIT study released in July of 2009 looked at approximately 60% of all mortgages originated in the U.S. between 2005 and 2007. The study concluded that allowing a property to go into foreclosure was a better business decision than allowing a loan modification:

“We argue that the data are not inconsistent with a situation in which, on average, lenders expect to recover more from foreclosure than from a modified loan. At face value, this assertion may seem implausible, since there are many estimates that suggest the average loss given foreclosure is much greater than the loss in value of a modified loan. However, we point out that renegotiation exposes lenders to two types of risks that are often overlooked by market observers and that can dramatically increase its cost. The first is “self-cure risk,” which refers to the situation in which a lender renegotiates with a delinquent borrower who does not need assistance. This group of borrowers is non-trivial according to our data, as we find that approximately 30 percent of seriously delinquent borrowers “cure” in our data without receiving a modification. The second cost comes from borrowers who default again after receiving a loan modification. We refer to this group as “redefaulters,” and our results show that a large fraction (between 30 and 45 percent) of borrowers who receive modifications, end up back in serious delinquency within six months. For this group, the lender has simply postponed foreclosure, and, if the housing market continues to decline, the lender will recover even less in foreclosure in the future.”

"While lower payments reduce monthly cash flows, they may also result in longer term sustainability of the mortgage payments. After 12 months, 37.6 percent of modifications that decreased monthly payments by 20 percent or more were seriously delinquent. In contrast, 58.8 percent of modifications that left payments unchanged and 56.2 percent of modifications that increased payments were seriously delinquent after 12 months."

Will Lenders take on the future market risk of further losses from a re-default/foreclosure by offering loan mods at the 20+% reduced payment level when they still have an annual failure rate of 37.6%? I suppose this decision must be tied to the stability of the market. Theoretically, the market would need to remain flat or increase in order to make this call, which leads us back to the "Shadow Inventory" discussion.

Here's one thing we can all count on: the Banks will do what is best for them and their shareholders.

I "calls'em like I see'em", and right now I believe we are 18-24 months out to housing stabilization let alone appreciation.

Best, Steve
0 votes Thank Flag Link Mon Sep 14, 2009
Hi Tom ~

Real estate is a long term investment and hopfully you purchased your condo with that in mind. As far as being better off renting ... that depends.

Consider the postives of being a homeowner:
1. you are able to deduct mortgage interest and pay less federal income taxes for years to come
2. you don't have to worry about your rent increasing
3. any improvements you make benefit you and not your landlord
4. there's more ... but you get the idea

Something else to consider ... credit guidelines have gotten tougher since you bought your home. Down payment assistance programs have all but disappeared, FICO requirements have skyrocketed so qualifying for a loan today doesn't look anything like it did then. Hopefuly you have a great interest rate and loan program.

All the Best,

Barbara
0 votes Thank Flag Link Mon Sep 14, 2009
HI Tom: I don't think anyone has the perfect answer for you...the one you want to hear. No one expects the market to rebound dramatically in the near future. If you are enjoying your condo, continue to do so. If renting it will help the bottom line, look into vacation rentals. The value of everyone's property has dropped from what it was two years ago. Our best hope if for prices to stabilize and start reflecting an increase in the coming year.
0 votes Thank Flag Link Sat Sep 12, 2009
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