Death Spiral Phase
April 17, 2008
– Comments (6)
We are now at the point in some markets that foreclosures are exceeding sales. This is where things get really out of hand.
Banks are buyers of last resort. If it goes back to the bank, no one wanted that property at the lowest price the seller was willing to accept. No one wanted it at the prices the bank was willing to discount. As a result, the house falls into the inventory of the bank. Now banks are accumulating thousands and thousands of homes.
Banks are not emotional sellers. They will sell the home at whatever price necessary to unload it. If the are taking in more homes then they are selling, then you can bet their motivation to sell at a discount will increase. As banks start discounting further, comps in the neighborhood go down. The problem is that as comps go down, the mortgages remain the same forcing more homes into forclosure.
Pretty soon, banks may have so much inventory that will be willing to sell at almost any price just to get the property off their books. Heck, residential land and lots is selling for pennies on the dollar right now.
Expect jobs cuts and salary reductions to drive even more homeowners into distress. Our nation has never experienced anything close to this before......AND WE ARE JUST STARTING THE PROCESS.
In Florida, in some gated communities, one third of the homeowners are in foreclosure and not paying association dues. The other homeowners are being forced to pick up the slack. What do you think a home in that community will sell for under those conditions?
It's nuts folks....but the deleveraging process has begun. Get ready for the biggest liquidation sale in the nation's history. It will be painful but in the end we will all be better off.....maybe.
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