Out of the Shadows in Phoenix – Part 2

We recently discussed the specter of shadow inventory, a large supply cheap homes that could overwhelm any progress in the Phoenix housing market if released in a short time frame.  It’s a fair question as to whether this inevitable or whether the homes can released in the market in a less devastating way.

Banks can be more helpful…


Will the shadow inventory come to pass?

Currently, homeowners who want to keep their homes are applying for loan modifications, but banks are reluctant to give meaningful modifications that decrease the principle.  Many who apply do not qualify under bank proposals or federal Making Homes Affordable guidelines fall into foreclosure.  Those who succeed often fall behind again, either because the modification don’t reduce the payment enough or because of unemployment of other subsequent changes in finances.

Banks are currently more likely to process the foreclosure than come up with a workable modification plan.  If banks decide to take the hit and reduce the principle and work toward meaningful modification, many properties will remain in the hands of homeowners rather than become foreclosure statistics.

Underwater homeowners can stay put…

Troubled homeowners may have less control over their circumstances, but today, many underwater homeowners decide to walk away when they owe more than the home is worth rather than pay their mortgage.  (This is less true for people who owe up to 20% more than the home is worth who tend to ride out the housing cycle unless they need to sell.)  Some with excessive negative equity debate the morality of strategic default, but the idea is now discussed openly in mainstream circles. 

Widespread foreclosure is not the only possible outcome.   Fewer people would think of sending jingle email to their banks if there were better options to refinance or have some of the principle decreased.  A new plan just released by the government on March 26, 2010 addresses underwater homeowners by doing just that cutting principal.

Investors don’t rush to sell…

Investors are another wildcard.  Phoenix could be in trouble if a large number of investors decide to sell this year.  At the moment, housing analyst Mike Orr’s Cromford Report claims that there are about 42,500 homes on the market in metro Phoenix, 2,500 more than in December.  Prices have fallen to a median price of $127,000 since mid 2009, when the median stood at $130,000.  An influx of cheap “shadow inventory homes” could further drop prices.

Since many investors paid bargain prices in cash, they might be happy to keep renting until they can foresee selling for a better profit.  Current statistics show rental prices are falling, which could be incentive to see.  However, since loans are harder to get for prospective buyers these days, investors may capitalize on a captive rental market. 

For more information about foreclosure alternatives or buy or sell a home in Phoenix, Mesa, Glendale, or surrounding areas, call Curtis Johnson Real Estate today.  One call will convince you that Curtis’s proven techniques will work for you.


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