It should come as no surprise to regular readers to learn that I spend an unusual amount of time paging through county deed transactions, reading mortgage contracts and particularly ARM riders in an attempt to better understand the motivation of home sellers.I generally wait for new listings to come on the market in the series of towns I monitor and then look up the records to see if some sign of stress or other factor may be apparent.
Maybe it’s a bit snoopy or even a little underhanded but it is very compelling and quite possibly serves as the only method available to get a sense of what’s truly driving the supply side of the existing home market.
From what I have seen to date, particularly in the last six to twelve months, I think it’s safe to say that at least half of existing single family home listings in the Boston metro area are motivated by some sort of financial stress specifically related to the homes themselves. (as opposed to the typical stressful motivating factors such as deaths and divorces which can be also be clearly discerned from the records)
First, there are MANY instances of homes that show lots of re-finance activity (2 – 3 refinances since the purchase in just the last couple of years) being finally secured with an ARM loan and, in many cases, really unscrupulous ARM loans with bad provisions. (i.e. high rates with some that never adjust downward from the unusually high initial rate).
Another pattern occurring in unexpected numbers are homes in which the prior deed transaction indicated that it was a transfer of property between family (nominal $1 transactions) with no mortgages THEN showing a slew of mortgage activity… it seems the draw of easy equity money was just too much for many who’s parents, sadly, worked a substantial portion of their lifetimes paying down the original debt.
Yet another example are many homes, just newly listed, with asking prices very close and even lower than the price the seller paid just one to three years ago.
Finally, there are properties with multiple missed tax payments and of course there are always the properties that are in some stage of the foreclosures processes.
I believe that this in part explains at least some of what’s behind the current lack of inventory of single family homes in the Boston area and may additionally serve to represent a somewhat similar process playing out across the country.
I think that many, especially more affluent, “homeowners” are only selling when they hit the wall.
They are holding out as best they can but eventually they have to face reality and make some changes.
This also dovetails nicely with the recent Zogby/AOL Real Estate Survey which showed that fully 22% of participants indicated that they would lose their home with only a short unexpected job loss and that 30% work paycheck to paycheck to simply pay their housing costs.
To sum this all up… I think that the majority of foreclosure and distressed selling we have seen to date only reflects the bleeding edge of “homeowners” and housing speculators with the worst most toxic loans and most problematic circumstances.
But I believe a large percentage of typical American households have been holding on for dear life.
This explains the unusually low results seen in the various consumer sentiment surveys as well as the dramatic pullback in discretionary and now even non-discretionary spending.
Given that there is a pretty solid possibility that this time next year national unemployment will be nearing, if not have surpassed 7%, I think it’s safe to say that the real challenges truly lay ahead.
