To every analyst, forecaster, and economist predicting they see the bottom of the real estate market, I respond as Vinnie Barbarino might: "Where? Where?" I know the bottom is there--we all do-- but much like in a polluted riverbed, it is hard to spot and treacherous to reach.
More than three years ago, I saw the banks of the NY metro housing market erode from my vantage point as an attorney wading in its waters. I saw serial refinancers, living on their equity, and watched repayment-challenged buyers receive mortgages as easily as frogs catch flies. Appraisers inflated values in far from desirable areas, encouraging investors to leave multiple homes vacant while they slapped on a coat of paint and re-faced the kitchen cabinets before cashing out from the next no money down speculators.
Then the more-more-more river turned stagnant; occasionally, like a skipping stone, a transaction did skitter along, only to sink with an inglorious "thud." In early spring, multiple pebbles started being flung furiously at the water, causing expert analysts to calibrate and celebrate the quantity of rocks, while ignoring the clunks that frequently still follow. The bottom must be close, they espouse: look at the volume of activity in the real estate market!
I'm still deep in the real estate waters, loudly hearing the sounds of sinking stones while those in the lifeguard towers think they hear surging surf. As the summer of 2009 begins, the latest wave of "can you help me?" calls I answer are no longer primarily from "sub-prime" borrowers. I've either helped them, or been unable to, and they've moved on. Nowadays the borrowers in a boatload of trouble and months behind in their mortgages formerly had better-than-decent credit, good jobs, and 20% or more money to put down (or a great deal of equity in their homes).
Some buyers, sensing blood in the waters, want houses upgraded and improved before they close. Sellers without the funds to accommodate these demands are deemed "unrealistic" as the buyers move on. Yesterday's market was significantly overpriced, but today's has very little negotiation, with a significant number of buyers regressing to their toddler years to get what they want. There's something about a population of homeowners who came into title via temper tantrums that cannot bode well for smooth sailing back to a stable real estate market.
I also come across sellers who remind me of cartoon character grandfathers, preferring to live in "the good old days" when their homes were worth 15-20-25% more. Those days are gone, grandpa--it's time to sell the ranch for whatever you can realistically get if you want to move on.
Should the parties reach an agreement, mortgage commitments take a long time to come through. Buyers' attorneys frequently ask for contingency extensions under the contract, and sellers are told to be patient for 90 days while they wait, unsure if the deals are solid.
More than a few mortgage applications eventually are denied, and the reasons say as much about the lenders as they do about the borrowers. Appraisals don't measure up; buyers' job prospects are shaky or their hours/commissions reduced; and lenders' programs are eliminated, scaled back, or have their guidelines toughened.
Underwater sellers are often unable to be saved via mortgage "short sales", despite pressure on lenders to offer such partial life preservers. Hardship files get referred to reviewers, or examiners, or janitors for all I know, who take so long to make decisions that buyers may exercise their contractual "out" clauses or see their coveted mortgage commitments expire.
I am watching speculation, the scourge of stability in quite a few residential neighborhoods, take on a different permutation. There's anecdotal evidence that attorneys and real estate agents seemingly deliberately screw up transactions so they, or their investor friends, can get the best deals. Homeowners who make the mistake of seeking guidance from these sharks find themselves up the real estate creek without a paddle to fend off the predators.
There's definitely a bottom to the real estate market. But to finish with my water metaphors, the bottom is not clearly visible through yesterday's floating wreckage and today's murky transactions. We need to save the drowners, repel the sharks, and raise the level of the bottom feeders. Only then will we be able to plot a safe course home.