Government’s failure to cure underwater homes causes learned helplessness in its people

May 31, 2011: The more people living in the United States fail to do anything about negative equity, the more they convince themselves that there’s nothing they can do. The more people perceive events as uncontrollable and unpredictable, the more stress they experience, and the less hope they feel about making changes in their lives. And those of us who know better should be doing all we can to break that vicious cycle.

Americans are pessimistic and it is affecting their behavior. The share of residents turning to food stamps has risen in nearly every state nationwide in the past year. The consumer confidence index shrank in May to 60.8 from 66.0 in April as Americans grew more pessimistic about job prospects and future incomes. Home prices continue their downward spiral with no end in sight. More folks than ever before in history are trying to get on disability, not because they cannot work, but because they fear never having a job again.

There’s nothing wrong with our workers — remember, just four years ago the unemployment rate was below 5 percent. The core of our economic problem is, instead, the debt — mainly mortgage debt — that households ran up during the bubble years… Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment. And once you realize that the overhang of private debt is the problem, you realize that there are a number of things that could be done about it.

Government efforts to address falling property values and a stagnant economy have failed horribly because they have not addressed negative equity in people’s homes. HAMP, HAFA and of course TARP have not only failed to help but have backfired. Those programs are estimated to cost the American people trillions of dollars. But the real cost to the American people of these programs and related operations is a no growth economy and stubborn long-term unemployment.

Negative equity must be abolished. Efforts to cure unemployment will fail if negative equity is not simultaneously addressed. There has never been a time in United States history where a community has ever sustained negative equity for more than a few years. No neighborhood, no city, no state and no country can survive when so much of its real estate is underwater. The problem will not be solved by the legislature due to political obstacles or Wall Street due to Wall Street’s greed. The problem will be solved by each homeowner taking actions that resolve them of their underwater home.

The solution lies with individual action. No longer should we or can we rely on the government to cure this particular problem. Each homeowner must eliminate the negative equity in their home- either through a short sale or foreclosure. Only then will unemployment fall and the economy grow.

Eighty Percent of North Las Vegans Won’t Move Because They Are Underwater

May 31, 2011:
In parts of North Las Vegas, more than 80% of homeowners owe more on their mortgages than their homes are worth. Staying is expensive, but many can’t afford to move.

There are two kinds of behavior that potentially explain homeowners’ reluctance to move in face of a fall in the value of their houses. First, when a person is underwater on the mortgage, which means that thevalue of the house has fallen below the amount owed on the mortgage, the homeowner may hesitate to move. An underwater homeowner has to come up with extra cash to pay off the lender, or has to default on the loan. Default can be undesirable for a variety of reasons, most obviously its harmful effect on the credit record.

In addition, an underwater homeowner may find it difficult to satisfy the down payment requirements for a new mortgage, if she decides to move and buy another house.

Therefore, whether or not negative equity reduces households’ mobility depends on the relative strength of those two competing forces.

In some parts of North Las Vegas, more than 80% of homeowners have plunged “underwater,” meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.

Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.

They’re considered the new normal here. They turn down higher-paying jobs elsewhere because they can’t move. They tidy the yards of houses left vacant by foreclosure. They realize it’s unlikely their children will receive tidy inheritances from the sale of their suburban homes.

When they look about their neighborhood, they question things they never questioned before. Are dead plants a sign that someone forgot to water? Or did the water get turned off? Does a garage sale mean more neighbors are about to bail?

Most Las Vegas homes won’t be worth what the homeowner paid on it until after they die.

No state is more underwater than arid Nevada, with about two-thirds of borrowers holding such mortgages, according to CoreLogic, a Santa Ana research firm

Case-Shiller index confirms double dip for first quarter housing prices

ITS OFFICIAL DOUBLE DIP CONFIRMED
May 31, 2011:
According to S&P’s latest report, home prices in 12 cities covered by the index fell to their lowest levels of the current housing cycle: Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland, and Tampa.

Data released this morning by Standard & Poor’s show that the S&P/Case-Shiller national home price index declined by 4.2 percent in the first quarter of 2011, after having fallen 3.6 percent in the fourth quarter of 2010.

The national reading hit a new recession low with the first quarter’s data and posted an annual decline of 5.1 percent versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” said David M. Blitzer, chairman of the index committee at S&P Indices. “The national index, the 20-city composite and 12 MSAs [metropolitan statistical areas] all hit new lows with data reported through March 2011”

Blitzer continued, “Home prices continue on their downward spiral with no relief in sight. Since December 2010, we have found an increasing number of markets posting new lows.”

Minneapolis posted a 10.0 percent annual drop, the first market to be back in the region of double-digit declines since March 2010 when Las Vegas was down 12.0 percent on an annual basis.

Washington D.C. was the only MSA displaying positive trends with an annual growth rate of 4.3 percent and a 1.1 percent increase from its February level.
Seattle was up a modest 0.1 percent between February and March, but still down 7.5 percent versus March 2010, although not yet in double-dip territory.
Seattle and D.C. were the only two metros of the 20 included in the index to record month-over-month gains in March. With an index value of 138.16 in March, the 20-city composite fell below its earlier reported April 2009 low of 139.26.

The 20-city composite posted an annual rate of decline of 3.6 percent in March, while the 10-city composite was down 2.9 percent from a year earlier.
Eleven cities and both composites have posted at least eight consecutive months of negative month-over-month returns.

“The rebound in prices seen in 2009 and 2010 was largely due to the first-time homebuyers tax credit,” Blitzer said. “Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession.”

High levels of foreclosures and sales of bank-owned homes are putting downward pressure on home price across the country, and with the pipeline of delinquent loans still bloated, property values are widely projected to continue to fall throughout the remainder of this year.

The latest readings from S&P were largely in line with market expectations. Economists surveyed by Bloomberg News were forecasting an annual drop in the 20-city composite of 3.4 percent compared to the 3.6 percent decline officially reported.

Nevada Economic Chairman John Restrepo Files Bankruptcy

When the $5 trillion housing bubble ruptured like an aneurism in 2008, the economy imploded. Home values plummeted — some say back to earth where they belonged in the first place — and millions of jobs suddenly vanished.

Restrepo said nobody should or could be fully blamed for the economy. “This recession has behaved like no other in history,” he said, “and it continues to do things that are unexpected.”

Few saw it coming, not even John Restrepo, the chairman of the Nevada Economic Forum, who quietly declared personal bankruptcy in November. The economist empowered to tell lawmakers just how much money they will have on hand to pay for government services wasn’t able to predict his own financial downfall states an article in the Las Vegas Review Journal.

“It happened so fast,” Restrepo said. “My personal situation was just like the national situation. Nobody saw this coming. Wall Street didn’t see it, the Fed didn’t see it. Do you really think the MGM would have built CityCenter if their top financial guys saw this?”

Glut of Vacant Homes Keeps Housing Prices Low

May 30, 2011: 14.3 million: The number of homes vacant year-round as of the end of March 2011

How long will the housing market take to hit bottom? A lot depends on whether people will want to occupy millions of empty homes.

Five years after the housing bust began, the market is still groaning under the weight of a near-record 14.3 million vacant residences. That’s about 3 million more than what was normal before the bust — a glut that could take more than 13 years to eradicate, given the depressed rate at which Americans have been starting new households and assuming construction of new homes remains at April’s low annualized level of only 551,000.

With so many homes waiting to be occupied, it’s hard to imagine how prices nationwide could recover anytime soon (though, of course, the experience of individual local markets can differ). The only hope, and a perverse one, is that many of those homes are actually phantom inventory — built in such awful locations, or in such disrepair, that nobody will want to live in them. Such an outcome could precipitate heavier losses for the people or banks that own the homes, but it could also mean a quicker recovery for the market as a whole.

Even if a big chunk of the U.S. housing stock can be written off, though, that might not be enough to generate a rebound in house prices. The bust has eroded many peoples’ faith in housing as an investment, mortgage loans are harder to get, and the millions of families still in or near the foreclosure process typically won’t be in a position to buy. As more people choose or have no choice but to rent, the U.S. homeownership rate is heading down. As of the end of March, it stood at 66.5%, the lowest point since 1998.

Most likely, renters will be the first to feel any recovery in the housing market — in the form of higher rents. Some large landlords are already reporting the lowest vacancy rates they’ve seen in more than a decade, and say they’re planning significant rent hikes this year. Given the fact that rent makes up nearly a third of the Labor Department’s consumer-price index, that suggests the housing market has the potential to produce a highly undesirable economic combination: a drag on growth and a boost to inflation.

Moving on emotionally after the Recession ends

THEY SHAMED US
May 26, 2011: When our house went under water, when we lost the equity in our home, we couldn’t sleep. We could never sleep again so long as we owned an underwater house. Like a functioning addict, we could never be truly happy until our house was gone.

The most important thing to remember when facing negative equity is that you are not alone and we are long past the point of needing to feel shame. Today’s economic environment and housing market are some of the worst in in world history and hardly a single individual cannot name someone they know going through financial stress. No matter how tough things are, your health should never be compromised due to a debt that is beyond your control. Here are some of the best things you can do to cope with the stress of a foreclosure:

Consult Proper Counsel
You need to shift your energy by learning about your options and your rights. Banks have no obligation to do anything for you but the right counsel can advise you of your rights and play a big role in helping you sleep at night.

It’s Not Your Fault
There is a lot of debate on this but there are dozens of reasons why you may be facing foreclosure and many of these reasons are beyond your control. From a mortgage you never understood to a forced move with an upside down mortgage, sometimes it’s just a matter of bad timing. While losing your house is a personal thing nobody else really cares about your personal situation so you need to take the steps to protect your own finances and provide for your family in the best way possible.

Think Long Term
If you are 50 percent upside down on your house do you really think you will ever have equity again? Why not consult with a lawyer and consider a strategic default or short sale weighing your options about having a home which may actually have future equity in it. Many consumers still think about how to simply pay next month’s mortgage instead of focusing on the big picture.

Reduce other Financial Stress
Most people who are going through a short sale are not doing so by choice which means you need to save money on all your bills. Shop around for savings on regular bills and use comparison shopping to find cheap car insurance, tips on how to save money and package deals on items such as cable and internet. If foreclosure was not planned then it’s important to get your financial house in order.

Talk about It
Financial stress can kill a marriage and your social life. When it comes to real estate a discussion about personal finances is not as taboo as it once was. Consumers simply have no love for banks anymore and defaulting on a mortgage is not this social scar you may think it is. Not only will talking about it help but you will be surprised how many people are actually going through the same situation and you may even learn some helpful advice.

Move On
Once you have weighed all the pros and cons of foreclosure let the system work and with the right counsel it will probably be quite some time before you have to call a moving company. Focus your energy on getting your finances back on track and leave the stress of dealing with un-cooperative banks to a lawyer.
There is no doubt that losing a home is a stressful process but there are many options a foreclosure attorney can assist you with to make life less stressful and reduce the economic impact to your family. Never feel like you are alone, odds are someone on your street is going through the same thing.

Recovery
Recovery involves rebuilding self-esteem. Regardless of whose fault you think it was, feelings of self- worth are at an all-time low. The many changes that have and are taking place force you to develop new areas of yourself quickly as a means of survival. Low self-worth–feeling inadequate and undesirable–can make it hard for you to function. But if you can face and rise to each challenge as it occurs, slowly but surely you will rebuild your sense of competence as a person and learn to trust that the person you are becoming can be relied on to come through.

Las Vegas Real Estate Flat Lines

NO END IN SIGHT

Both homeowners and renters are more cautiously optimistic during the first quarter of 2011 than in the fourth quarter of 2010, according to Fannie Mae’s latest national housing survey. However, they continue to lack confidence in the overall strength of the housing market and economic recovery.

The First-Quarter 2011 Fannie Mae National Housing Survey polled homeowners and renters between January 2011 and March 2011. Findings were compared to similar surveys conducted throughout 2010 and December 2003.

Survey results show that Americans’ new-found optimism about home prices, the economy and personal finances is offset by concerns about rising household expenses, which may require Americans to remain cautious about the recovery.

“Despite moderate signs of improvement in the housing market and the overall economy, consumer attitudes continue to be shaped by ongoing concerns about the recovery and their own financial situations,” said Doug Duncan, vice president and chief economist of Fannie Mae. “Uncertainty regarding the improving labor market, expectations of little home price and interest rate movement and rising household expenses has left consumers feeling less financially secure and translates into weak mortgage demand. While we have seen indications of improving economic activity in recent months, especially the strengthening of private sector employment, consumers’ attitudes improved only marginally and in some areas not at all, from a year ago, reflecting the continued unevenness and uncertainty of this recovery.”

In comparing the past and current surveys, the number of Americans who perceive homeownership as a safe investment has been declining (from 83% in 2003 to 66% in first quarter of 2011). However, 57% said they still believe that buying a home has a lot of potential as an investment, more than any other investment tested.

Other Fannie Mae Survey Highlights
Nearly one in four (23%) mortgage borrowers say they are underwater, compared with 30% in January 2010. 46% of underwater borrowers say they are stressed about their ability to make payments on their debt (versus 35% in June 2010 and 33% of all mortgage borrowers). And, nearly twice as many underwater borrowers (27%) think it is okay to walk away from a mortgage if they face financial distress than in January 2010.

44% of homeowners said they believe that the value of their home today is worth 20% or more than what they originally paid for it, declining from 46% in June 2010 and 51% in January 2010.

One in three Americans (30%) expect home prices to strengthen over the next year, up four percentage points from the fourth quarter of 2010, but virtually unchanged from a year ago.

Separately, Freddie Mac released its U.S. Economic and Housing Market Outlook for May showing a pick-up in economic growth in the second half of 2011 but with unemployment lingering above 8% through year-end. A large number of workers unemployed for a long period remain the predominant force behind seriously delinquent rates on mortgages.

“While the labor market is moving in the right direction, it still has a long way to go before the unemployment rate moves sharply lower. And ditto for seriously delinquent rates on mortgages,” said Frank Nothaft, Freddie Mac, vice president and chief economist.

Nothaft noted that more than 250,000 new jobs are needed monthly, on a sustained basis, to reabsorb all the jobs lost since the recession.

Freddie Mac Outlook Highlights
During the first quarter of 2011, home prices decreased by 2.8% nationwide.

The rate of seriously delinquent mortgages (8.6% average) will likely trend lower during 2011, but continue to remain at extraordinarily high levels for an extended period.

Positive signs: homebuyer affordability remains extraordinarily high, mortgage rates low, house prices are well off their cyclic peak and contract signings for existing home sales are up. Freddie Mac is projecting a 5% increase in 2011 home sales over 2010, on a calendar year basis.

Las Vegas Strategic Defaults and Short Sales Continue to Grow- Good News for Realtors

SHORT SALE AGENTS CAN MAKE A KILLING

According to Wikipedia, a strategic default is “the decision by a borrower to stop making payments (i.e., default) on a debt despite having the financial ability to make the payments.”

In late January of this year, a report on strategic defaults issued by the Nevada Association of Realtors seemed to confirm the findings of the two studies I’ve discussed. The telephone survey interviewed 1,000 Nevada homeowners. One question asked was this: “Some homeowners in Nevada have chosen to undergo a ‘strategic default’ and stop making mortgage payments despite having the ability to make the payments. Some refer to this as ‘walking away from a mortgage.’ Would you describe your current or recent situation as a ‘strategic default?’”

A growing number of seriously underwater homeowners are beginning to sense that their property’s value will not return to what they paid for it for many years, if ever.

The findings of a shocking new survey reported jointly by trulia.com and realtytrac.com were released on May 18 of this year. It revealed a dramatic change in consumer attitudes about when the housing market will “recover.” Only last November, 37% of those polled believed the recovery would begin no later than the end of 2012. That number plunged to 18% by April.

Most ominous in the report is that 54% of those surveyed thought the recovery would not occur until “2014 or later.” This percentage was only 34% in November 2010. Such an extraordinary shift in six months tells me that the number of potential walkaways is growing by leaps and bounds.

Of those surveyed, 23% said they would classify their own situation as a strategic default. Many of those surveyed said that trusted confidants had advised them that strategic default was their best option. One typical response was that the loan “was so upside down it would never have been okay.” What seems fairly clear from this Nevada survey and the two reports is that as home values continue to decline and loan-to-value (LTV) ratios rise, the number of homeowners choosing to walk away from their mortgage obligation will relentlessly grow. That’s good news for short sale real estate agents.