Homebuilders: Barely in the clear

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Although recent reports on the real estate market show U.S. home builder confidence at a six-year high, it may be too early to say the housing industry is back in full force. The country had seen steady gain in the housing demand since its record low in 2005, but experts at Forbes seem to think the industry still has a few challenges to overcome before analysts can say that the sector has recovered.

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Even with how Congress averted maxing out the national debt, the new “fiscal cliff deal,” or Taxpayer Relief Tax Act, provides a negligible leeway for credit seekers. Loan and mortgage applicants may only qualify if they managed to maintain exceptionally high credit scores– a chore that proved increasingly difficult during the economic recession. Those who do qualify for a mortgage could still be presented with undesirably high interest rates, which discourage borrowing or any purchasing activity in the real estate sector at all.

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In observing the trends, it is easy to note that real estate prices are rising faster than they’re getting sold. This is a familiar sign of another “burst” in the real estate “bubble,” such as was first seen in 2007. The symptoms are at risk of moving from residential real estate to commercial and corporate properties. Companies like Network Capital Funding have recently announced embarking on an extensive office redesign. While infrastructure improvements raise real estate value, the industry is not predictable enough to determine if the cost of construction will reward returns when the property is sold.



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Reblog: Is the Stigma of Ditching Your Underwater Mortgage Fading?

This article on Time.com reveals the changing attitudes of consumers in the real estate market:

A good five years after the subprime mortgage crisis and housing bubble collapse, more Americans are deciding that it’s okay to just walk away. In a new survey, roughly a third of respondents said it was socially acceptable to strategically default on a mortgage.

In a survey conducted by JZ Analytics for ID Analytics, 32% of more than 1,000 respondents said they “believe homeowners should be able to strategically default on their mortgages without any consequences.” Although the annual study hadn’t asked this question in previous years, other research about attitudes around strategic defaults indicate that this number is probably quite a bit higher than in the past. In a research paper published in 2011 titled “The Determinants of Attitudes towards Strategic Default on Mortgages,” researchers found that 82% of respondents in a series of surveys taken between 2008 and 2010 think it’s “morally wrong to engage in a strategic default.”

In 2009, Georgetown University professor of business ethics George Brenkert told the Wall Street Journal that homeowners have a moral responsibility to remain committed to their mortgage. Today, there’s obviously still a social stigma to walking away from an underwater home, given that the other two-thirds of respondents didn’t find it acceptable. In addition to shame and guilt, people also have to face a sense of loss, since most of us are emotionally attached to our homes. There are practical considerations, too: the stress of being hounded by collectors, the knowledge that you’re torching your credit, and the possibility — depending on the state — of being sued by the lender to make up the shortfall.

There’s also community pressure to avoid foreclosure: Defaults hurt nearby property values. A 2010 study by the Cleveland Fed found “foreclosure-related sales have prices about 27 percent lower than comparable properties… each foreclosure lowered the selling price of other (nonforeclosure) properties within a radius of about 260 feet by nearly 1 percent.”

Despite all this, attitudes have clearly changed. As the subprime meltdown mushroomed and letting a home go into foreclosure became more common, the idea that only deadbeats default has been fading. The ID Analytics survey found that 17% of Americans know someone who has strategically defaulted on a mortgage.

What’s more, many people now recognize that companies are often able to declare bankruptcy and either shed or restructure their debts without long-term consequences. In a 2009 paper that explored the question of why more people don’t just hand the keys back to their lender, University of Arizona professor Brent White called the idea that companies can default but ordinary people shouldn’t “norm assymetry.” He writes:

Unlike lenders who seek to maximize profits irrespective of concerns of morality or social responsibility, individual homeowners are encouraged to behave in accordance with social and moral norms requiring that individuals keep promises and honor financial obligations.

This attitude faded, however, as it became increasingly clear that lenders were complicit in the excesses that led to the mortgage crisis. “Some of the survey respondents feel homeowners should be able to strategically default on mortgages because they believe the mortgage market has been a scam for many years, built on false promises that took advantage of people,” ID Analytics says in a statement about its survey.

Indeed, noted the authors of the “Determinants of Attitudes” paper, anger at financial institutions seems to have sped this change of attitude:

    “We find that people who are angrier about the current economic situation are more willing to express their willingness to default, as are people who trust banks less. Similarly, people who want to regulate executive compensations and the financial sectors are more likely to declare their willingness to walk away.


Read more: http://business.time.com/2012/10/15/is-the-stigma-of-ditching-your-underwater-mortgage-fading/