Is the Foreclosure Moratorium Helping or Hurting?

With a Foreclosure Moratorium in place do you think it's helping or hurting the marketplace? With respect to low inventory causing multiple offers.
  • August 10 2009 - Pasadena
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Answers (14)

Hurting the marketplace.
  • August 10 2009
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Multiple offers are due to huge demand at the entry level of Southern California housing and is not due to the Moritorium.  All the Moritorium has done is to cheat many 1st time buyers out of their $8,000 because the investors are eating up the low-end market.The good news is this is starting to put upward pressure on mid - level priced homes which will, eventually, put pressure on upper price homes.
  • August 10 2009
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Profile picture for BMFPitt
Depends on your perspective.  From the phrasing of your post it appears that you want a dysfunctional and distorted market propped up by the government.  I believe the moratoriums are helping to create that, at least temporarily.  But in my wildest imagination, I can't see how it can be anything but temporary.

It's even worse than the 8k bribe because at least the bribe doesn't directly reward the irresponsible.  I don't know why doing it indirectly is really any better, but at least it feels slightly less terrible.
  • August 10 2009
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Profile picture for klarek the realist
Great for sellers.  More bubble money for their pockets.  Bad for everyone else.  Creating an artificially low inventory and forcing buyers to pay more than they should, like a cartel.
  • August 10 2009
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The moratorium is helping to dry up the supply of low end houses which will help to float home values across the board.

But depending on the laws of each state, a foreclosed home can take anywhere from a couple weeks to a year to reach the market. So it's going to vary across the country.

Short term, it's a breather for all home owners.

Long term, it's just prolonging the death of the patient.
  • August 10 2009
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Profile picture for klarek the realist
And long term, it is just more govt debt.  Does nothing for the market except ensnare more long term debtors that will be underwater for a portion of their ownership life.
  • August 10 2009
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Profile picture for jal74
It depends on how you think.  Are you into short term gain that turns in to long term pain?

What these actions do is help maintain a current price artificially, however, the long-term effect is to delay the time it takes for prices to reach a market clearling level.

So instead of quickly finding the natural clearing price in the short run, but inflicting some additional harm so that we can move forward, we put off that event.  Thus, the effect will be that house price appreciation will be less than one would expect until such time as those prices would have been reached naturally.

Thus instead of housing prices rising at the rate of inflation plus 0.4 to 0.6 percent per year (the natural rate of income growth in the US over 100 plus year timeframe), you will see for 5-10 years that prices will rise less than the rate of inflation until the true equilibirum is reached.

Thus for the next decade or so, you can expect that real house prices will decline.  Thats the long-term pain I spoke of earlier.

Regards
  • August 10 2009
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Profile picture for dacolan
I can't fathom how the combination of rising defaults and falling foreclosure rates, creating a massive shadow inventory, can possibly be helping the residential RE market stabilize. The final reckoning has yet to come.
  • August 10 2009
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It does nothing. Since the banks refuse to put ALL their available properties on the MLS and that slows the market from decreasing to it's balance, a Moratorium really has no effect unless those would be homes that the banks would LIST. lol

The only reason you are seeing multiple offers on homes, is because the banks are only putting about 1 out of every 10 homes on the MLS. Look at realtytrac.com to see more homes.  I'm sure there are plenty that have no bids.
  • August 10 2009
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kicking the can down the street...
  • August 10 2009
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Profile picture for blank screen EXILED
The lenders would attempt to manipulate the market regardless to try to maximise their profit and minimise their losses.  The moritorium was primarily supposed to encourage loan modifications, but it has little affect their as most modified loans will still end up foreclosing.

All the moritorium does is gives the lenders an excuse not to modify loans, and to delay liquidating bad debts.  So they will complain excessively that the government is interfering with their business, but they actually prefer it as it provides them more options for manipulating the books to make it look like they are solvant when they really should be shut down.
  • August 10 2009
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Here is a great article from Realtor Magazine entitled just this ... "Why the Foreclosure plan Isn't Working". The answer is not complicated folks, although if it was we might feel better about it. :-)  Click on the link below to check it out. I also have to say, I love that the author uses the word 'gobbledygook'. If you are a fan of the show Better Off Ted, you will totally appreciate that this is in kind with Jabberwoky!

Why The Foreclosure Plan Isn't Working
  • August 12 2009
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Profile picture for First time home
I support free markets and I am usually skeptic about government interventions but for these foreclosure markets especially in California REGULATION IS NEEDED NOW. I would like to take this opportunity to invite all Americans to assemble and pressure their local and state legislatures to put forward new city ordinances, state and hopefully federal laws prohibitingreal estate property transactions bellow the home building cost. Because severely under priced bank owned properties are not only driving home values down into negative equity putting on financial burden to homeowners but also is contributing to the increasing unemployment rate. While the financial sector is caching out and allowing bonuses to their executives the construction sector is bankrupt putting a lot of people out of work while homeowners live in fear knowing that they own more on their houses than what the properties are valued in these foreclosure drive markets as a result spending remains down affecting all sectors of the economy and blocking economic growth also because nobody is in position to access their home equity to start new business or making new investments. Housing markets shall be stabilized now before is too late, the current measures are not working. If overpriced properties create the mortgage bubble that let us into a recession ridiculously under priced houses will let us into a deep depression soon if this vicious cycle continues.
  • August 15 2009
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Profile picture for blank screen EXILED
If a house is not worth what it would cost to build it, it should not be sold for what it costs to build it nor more.  There are lots of things that can lower the value of a home.

Besides, labor rates can be substantually different, and means and methods can substantually change what it costs to build homes.  I know many homes that are built for less than $5 per square foot, so maybe that is the "bottom" that you are asking for in such meanless legislation?

Besides, what good does it do to say that you can't sell something for less than a given price?  If they can't sell if for that, it just sits empty on the books of the lenders???  It does nothing to stabalize the pricing.

"Free markets" typically don't work very well and are very abusive to the environment, are not "sustainable", and cause a majority of resources to end up in a landfill prematurely.  BUT, government dictated markets are substantually worse.  If HUD and Fannie May and Freddie MAC did not exist, housing prices would not only be more stable, but they would also be more reasonable.

If you really want the government to interfere with housing, than you better have the government take over all housing and allocate housing based on need only so that you can maximise the inefficiencies of "socalism".
  • August 16 2009
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