Congratulations to President-elect Barack Obama! We in the real estate field are looking closely at what he will do to try to turn this economy, and specifically our industry, around.
The issues are multi-faceted, but not insurmountable. The primary problem is the number of foreclosures on the market with more to come. But our data indicate that we might have peaked out in the number of foreclosures already. Lets hope that this is the start of our economic recovery.
Numbers from the National Association of Realtors state that only about one percent of all outstanding mortgages are in default; Moody’s estimates about 1.2 percent. Traditionally, the foreclosure rate is about one-half percent of all mortgages, so the number has only doubled in these turbulent times.
Lenders have all tightened up on their underwriting guidelines, so defaults due to unqualified borrowers should diminish, if not all disappear entirely. The prices have somewhat reached the bottom, and so defaults due to falling prices should also decrease. It will take about another year to work through this pipeline of bad loans, and then our mortgage and real estate industry will correct itself again.
One of Obama’s jobs is to monitor and pass legislation to make this process run smoothly, with the least amount of pain to the general public as possible. In order to make this a successful transition, the solution will have to include some aide to homeowners while minimizing lender losses without putting too much unnecessary financial burden on innocent taxpayers.
This will be a balancing act for the next twelve months. The decisions he and his cabinet will make will not all be pleasing to one side or another, but they need to be made in order to insure that our nation continues to be strong financially.
With capitalism, the market forces will work itself out with or without government intervention. But with the proper guidance and direction from those high above, the process can be made much more palatable.
Best of luck to our next president. We will all be watching.