Palo Alto Real Estate

There was a lot of teeth-gnashing in the media last week when news hit that April foreclosures broached a new record, with 342,000 homes receiving notices of default, auction notices or bank repossessions. RealtyTrac, an online marketer of foreclosed properties, exacerbated matters by reporting that one in every 274 homes received a foreclosure filing during the month, the highest in the company's rather scant four-years of record keeping.
The media also pounced hard on the news that the national median home price fell to $169,000 in the first quarter of 2009, due to a market flooded with lower-priced foreclosures and short sales. The punditry then began to lament that the loss of home values puts more mortgage borrowers underwater, which, in turn, could increase foreclosure rates in two ways: Underwater borrowers have no home equity to draw on should they need to pay for unexpected expenses, which makes them more likely to miss mortgage payments; and when home values fall far below mortgage balances, homeowners sometimes walk away from their loans.
We feel it's our duty to provide a little perspective. Yes, a large unexpected bill can strain family finances and the ability to service mortgage debt. But the question that needs to be asked is, how large is the expense and how often do these large expenses occur? The answer is not as often as we are lead to believe. We also feel obligated to challenge the notion that underwater borrowers walk away from their loans. Some do, but most don't. If people are working and the monthly payment is manageable, they will keep paying, even if they are underwater. Walking away has its consequences, not the least of which is making it highly unlikely the defaulted borrower can get a refinance or purchase mortgage when the economy recovers. People realize that, so they are less cavalier about throwing away their future than we are lead to believe by the media.
It's also worth noting how concentrated the foreclosure “problem” is: Ten states accounted for 75% of all foreclosure activity, and they fell generally into two categories: one-time bubble markets and the rust belt. California , not surprisingly, outpaced the competition, but even California 's foreclosure boom was confined mostly to its northern regions. Other hard-hit former boom states included Florida , Nevada , and Arizona . The rust belts states with the most filings included Illinois , Ohio and Michigan . Georgia , Texas and Virginia rounded out the top 10. And let's remember, the pick-up in foreclosures is also due to more banks accelerating the process to clear the dead wood, and that's a good thing.
Another good thing is buyers will be allowed to use their first-time homeowner tax credits as down payments when they get FHA-insured loans. Depending on the buyer's tax-filing status and the price of the home, the tax credit can be as much as $8,000.

It's Getting Better All the Time
Federal Reserve Chairman Ben Bernanke has forecast an end to the US recession, which he believes will be kaput before 2010. Bernanke also told the Congressional Joint Economic Committee that the collapse in the housing market, which began three years ago, may have bottomed out, something we've been saying for the past month.
Forecasts, especially about the future, can easily go astray, so we don't want to put too much faith in the Fed chairman's prognostication. But many signs are appearing to suggest the recession won't go much deeper. The latest comes from Mr. Bernanke himself, who said last week that “early indications” show that investor demand for the central bank’s loans to buy asset-backed securities, including mortgage-backed securities, will rise next month from May’s total, suggesting confidence in so-called toxic mortgage securities is growing.
The banks are another sign all might be well. They have been loosening their purse strings of late. Mortgages are more readily available, and so is consumer credit. This tells us that the banks' balance sheets are improving, as has their outlook for the future. Our outlook, meanwhile, has already improved.