The report this week was that foreclosure filings are once again on the rise.  What’s going on?

The reality is there is a backlog of delinquent mortgages that have been caught in a process that is overloaded and thus delayed.  I’ve said it again, and I’ll say it now – the key to a full recovery in the real estate market is to move people out of homes they cannot afford and into homes they can.  Though well intended, I believe the programs to keep people in their homes on temporary modification plans only push the resolution of our marketplace further down the road.

It is time we, as real estate professionals, have the difficult, but necessary conversations that allow people to move forward in their lives – with new, more affordable living arrangements.  It is time to move delinquent loans to the marketplace now by having those conversations, and allow people to move on.

I’m returning to DC after having met with an asset manager of a quasi government organization that buys most of the mortgages in the country.  We went to lunch and discussed the future of the REO business (bank foreclosures) and it is clear there are several more waives of foreclosures to come before we’ve flushed out the challenges in the real estate market.  There are essentially four areas of REO assets and we have really only cleared through one.

1. Subprime mortgages – we’re mostly done with the bulk of these
2. Prime mortgages – moving through this inventory now, unemployment is causing this to increase
3. ARMS –resets coming in the next couple years which will put more inventory on the market
4. Commercial – the damage has just begun

Additionally, lenders are holding back huge stock piles of inventory known as the “ghost market” and releasing it slowly.

The good news for sellers though is I think most of the price declines have stopped in the DC area.  We are now seeing many multiple contracts (as many as 20) on foreclosures and the prices in several cases have fallen to below the material cost of constructing the home itself and sometimes below the land value!  (not in Dupont Circle though) Just as prices could not remain unsustainably high, they cannot remain unsustainably low either.

Buyers:  you’ve missed the best time to buy which I think was last fall, yet now is still an AMAZING time to buy.  My question to you is – what in the world are you waiting for?