It all gets down to supply and demand. The banks have been keeping millions of homes off the market until a settlement was reached in the $25 billion robosigning scandal. Now that the 49-state deal has been finalized, the banks are preparing to put more of their of distressed homes up for sale. That will lead to lower prices and the next leg down in the 6-year long housing crisis.
According to Reuters, new foreclosures “begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo’s rose 68 percent and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011.”
So BofA, which unwisely purchased Countryside following the Crash of ’08, is scrambling to get its house in order by removing the deadwood from its balance sheet. Good luck with that.
In order to avoid a sudden plunge in prices–which would be devastating for bank balance sheets–the banks will continue to control the number of homes that are released onto the market. In 2011, existing home inventory shrunk by 20 percent year over year while the shadow backlog of distressed homes continued to grow in leaps and bounds. This shows that the banks are managing inventory to minimize their losses.
But even though “visible” inventory has shrunk by as much as 30 percent in some markets, housing prices have continued their downward trek, dropping roughly 4 percent in 2011. This reflects the truly dismal condition of the underlying economy that is wracked by high unemployment, flat wages, and soaring personal debt. Absent another round of fiscal stimulus, there’s little chance that housing sales
will rebound in 2012 despite historic low rates and myriad government loan modification programs.
The biggest problem facing housing now is that ordinary working people can’t make their monthly payments. An article in Reuters summed it up like this: “The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”
