Foreclosure scandal may boost prices — but not for long

Special to The Washington Examiner
November 14, 2010

Foreclosure controversy

Home sellers who are not in foreclosure or short sale situations still are affected by them as the latest crisis roils the market yet again.

“The foreclosures have created extra competition for regular home sellers,” said Carolina Zeeb, vice president of the Capital Area Real Estate Investors Association. “It means people are having to sell lower.”

The recent foreclosure paperwork controversy also may cause other market changes. Joe Murin, chairman of the Collingwood Group, a Washington real estate advisory firm, said it will likely delay foreclosures from getting to the market and, as a result, prolong the time to stabilization and economic recovery.

“We will likely not see the bottom of the tub for another three to four quarters,” he said. “The underlying issue with the foreclosure scandal is an antiquated processing system that is not designed to handle this kind of foreclosure load.”

A handful of major national banks are bearing the brunt of the foreclosure burden and they don’t have the processes in place to handle the current volume, he added.

The temporary holdup in the release of foreclosure properties will decrease housing supply, at least for the short term.

“Had all those pending foreclosures hit the market, it would have meant a downward spiral on prices,” Zeeb said, for both foreclosure and nonforeclosure properties.

Now, the scandal could lead to a drop in sales of foreclosure properties and a brief increase in prices on regular properties. But it likely will affect real estate investors who gravitate toward foreclosures more than regular homebuyers.

Nevertheless, when there is uncertainty in the market, it stifles consumer confidence and leads buyers to slow down their decision making. Murin said it will slow down the market for months to come and he is not certain the worst is over.

“Frankly, I think the number of foreclosures is going to go up slightly,” he said. “We’ve had prolonged unemployment and more and more delinquency.”

Zeeb does not think the presence of foreclosures or even a scandal will change the basic way buyers shop for a home.

“Buyers will look to buy what is best suited for them in terms of price, location, proximity to schools, work and shopping,” she said. “If a house meets their criteria, they gravitate toward it, regardless of whether or not it’s a foreclosure.”