Just as 1969 was known as The Summer of Love, 2010 will go down in history as The Year of The Short Sale. We are experiencing something unique. Home sales in the US had a three year hiatus after Hurricane Katrina, but for the last 12 months we have seen home sales increase dramatically. This is prompting many Economists and Real Estate practitioners to say that we have reached the bottom. Optimistic homeowners are still occasionally heard saying "I will wait till prices bounce back". I got new for You optimists out there. Home prices have about as good a chance of bouncing back to 2006 prices as a water balloon dropped from a 12th floor Penthouse has of bouncing back up to the person dropping it. The balloon will hit the ground and the water will spread out and stay down. Home prices have dropped and are not coming back any time soon. Things will stabilize over the next two years then probably return to a more normal 3% to 5% annual appreciation. There are still areas that have a ways to go, and condo's are still a little soft. But with all of the good news consumer confidence is climbing, Interest rates have remained in the high 4's to low 5's for the last 6 months. Obama pushed for home buyer incentives that have achieved the goal of stimulating sales not just for first time home buyers but across the market. The first time homebuyer purchasing a families home allows them to move up or laterally. The one strange thing about this recovery is that home values fell so far that close to 50% of all homes with a mortgage are "upside down". Never in our history has this been true. And we are not talking a little upside down, we're talking "Call the Undertaker" upside down. The only possible way for home sales to continue and for the banks to clean up the mess of upside down unsalable loans is to beef up the banks staff in the loss mitigation department and start stamping Approved, Approved, Approved like that guy in the car loan commercials. Most people in the industry will agree that short sales are about the only way to clean up the mess of upside down loans. The loan modifications have not been done to the degree that is needed. Banks are trying to shave off just enough to keep the borrower paying for a couple months and back in default they go. They need to lop off enough of the loan to get it down to the property securing the loans market value or below or the loan modifications will not work. Since the banks shudder at the thought of doing this we will continue to see foreclosure filings in record numbers and short sales making up 30% of real estate transactions for the next 2 years. It will be interesting to see how the credit reporting agencies handle short sales in the next 5 years. They will have to show some leniency or lenders will have a greatly reduced pool to lend to. The banks for the most part have been doing a better job of processing short sales so the days of the 6 month short sale are gone. Most average 10 weeks for approval which is manageable for most people. It is the unknown time frame that causes the high failure rate of short sales. Buyers get tired of no answers and move on often times days before the approval comes. But as Banks and Real Estate Agents become more familiar with this process it will become easier. By the time everyone gets good at them they will slip back into the occasional category. The Summer of Love sure sounds more fun!
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