confusion about mortgages & appraisal values

[scorpionis]

Hopefully one of you more knowledgeable people can clear up a bit of my confusion regarding the housing loan crisis and how it relates to how municipalities value their homes. Where I live, Austin TX, home prices have at least partially been driven up by increasing home appraisals on the part of the county and city. For example, the house I live

Comments

[chessdev]

This is the "simple version

[shmigs]

I personally believe the housing market is much worse than one would think. Banks are holding foreclosed homes on their books and not putting them up for auction, sale or into the MLS. Therefore, once a recovery does start and banks start putting these homes into the system, more supply will continue to come into the market as demand increases, holding values down. Bottom line is that home buyer incomes must match carrying (mortgage) costs.

[ebenizer]

I've also heard tell that a lot of banks are holding off on going into foreclosure on homes that have been abandoned by people that could no longer afford their mortgage payments so the banks can remain solvent which will just make it that much worse later on. It was being compared to hiding bodies under the carpet. lol

[chessdev]

Prices will continue to drop, but at a controlled rate versus a straight-out crash.

In the long run, this is a good thing.

[shmigs]

This makes me think of what happened to Japanese economy through the 1990's. A stagnant economy. A random paper I found on the subject: http://people.ucsc.edu/~hutch/greatstagnation.pdf

There is great debate about whether it's better to "muddle through" over an extended period of time or get the pain and writedowns over with quickly.

[scorpionis]

I'm inclined to agree. We'll be cleaning up our finances as the country is and hopefully by the time everything is good again we might actually be able to *afford* a house, not due to increased income but because they won't be so damned expensive anymore. We're not poor and we still can't afford houses in our own city.

[scorpionis]

Why are the banks holding them? Are they thinking they can still get the current value if they just wait and hang onto it until things improve? That seems like a risky gamble.

[cieldumort]

They are holding them, alright, but not to get current value lol

(real current value being far less than they want to have to write off)

Yep. There is a huge "ghost inventory" yet to come on the market. Scroll back a few posts, and you'll see some more on this.

Banks Holding On to Foreclosed Homes

[shmigs]

Link to an article on the topic of banks holding onto foreclosed houses:

http://money.aol.com/news/articles/_a/bbdp/banks-holding-on-to-foreclosed-homes/316394

[chessdev]

It controls the inventory on the market which helps control the price...

If everything hit market at once, the value of homes could *crash* in some areas and mess up even people who didnt buy a mortgage recently.

There could be some other stuff with protecting their assets on the books, etc...but I'll let someone else more knowledgeable go into that stuff...

[peristaltor]

There could be some other stuff with protecting their assets on the books, etc..Yup. Banks list mortgages and foreclosed houses as assets supporting the loans they make. Without assets, they are not allowed to issue loans. (The ratio of assets to liabilities [loans] is not 1:1, more like 1:10 or something

[scorpionis]

Thanks: I get it now!

[scorpionis]

Ah, thank you!

[alobar]

> it will allow people to start buying again when recovery starts.

I think it may be more accurate to say "if recovery starts".

the_recession

[chessdev]

It will.

If you dont believe it will, I suggest you leave the cities now before the food riots start... 8-)

It may be a LONG recovery, but it will start...