Vicious Foreclosure Cycle Threatens as Home Prices Fall

Tuesday, October 25, 2011

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on The Brian Lehrer ShowJhoanna Robledo, real estate reporter at New York magazine, and Nick Timiraos, Wall Street Journal real estate reporter, talked about Obama's housing rescue plan, the latest real estate market indicators, and whatever became of all those vacant condos.

The vicious foreclosure cycle

New statistics for September show housing prices fell 3.8 percent—worse than analysts expected. All told, the price of an average American home has declined more than 30 percent since 2006

When homes lose value, it puts owners at risk for going underwater on their mortgages: Eventually, the house may be worth less than what they owe, so even selling the asset wouldn't cover the liability. Foreclosure is the result; ironic, because foreclosures sell for less and drive down home prices to begin with. Nick Timiraos said it could be hard to extricate ourselves from the trend.

We could be in a vicious cycle where more foreclosures means prices go down, more prices going down means more people are underwater and if they can't get jobs, if they can't make their mortgage payments, then they become foreclosures and the cycle feeds on itself.

The Schumer solution

How do we get out of this mess? Do we make it easier for homeowners to refinance, as the Obama administration has been trying to do? Do we put more focus on growing the economy so people have an easier time affording their mortgage payments in the first place?

Senator Chuck Schumer (D-NY) has an unlikely proposal: Offer "homebuyer visas" to foreign nationals so that they may buy property in the United States. Schumer says it would help the housing market and bring consumers with high net worth into the country, where they'll buy goods and pay taxes.

Jhoanna Robledo was confused about the proposal in terms of why it was necessary and how it would help.

It's a little confounding to me because foreign buyers are already here. My question is how much more it can improve the market here in the city?

Nick Timiraos echoed her concerns, pointing out that the homebuyer visa wouldn't allow foreign nationals to work in the United States. Only a very specific demographic would be able to use it.

If they're rich or retired it works for them, but if you can't work there's not a whole lot else you would do with it. These are maybe second homes or retirement homes for wealthy foreign nationals.

A bright, bullish future?

Although home prices and sales were down in September, housing starts rose. Does that indicate bullishness in the housing market? Should we anticipate prices to start climbing again soon?

Nick Timiraos said that maybe in the long term there was some hope that housing will be a good buy, but looking at the short term he wasn't sure from whence such optimism came. Certainly it's a buyer's market, but he didn't see it become a seller's market anytime soon.

Housing is cheaper than it's been in a long time...Interest rates are very low and housing starts have been minimal, so it's hard to get much lower from here if you're looking at just the homebuilder's segment. In terms of home prices getting better here, we're heading into a part of the season where foreclosures will be a growing share of home the next few months i'm not so optimistic.

Jhoanna said she was seeing a modicum of relief rather than optimism.

I wouldn't say people have been talking as if they're very bullish on housing. Right now we're moving sideways. We're happy I think to be stabilizing and we'll see what happens.


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Comments [15]

angela from Manhattan

Nicely summarized, Hugh Sansome. Send it to Senator Schumer.

Add in some more reasonable criteria from the from the banks for the would be buyers who can finally afford to purchase .

Oct. 25 2011 02:33 PM
angela from Manhattan

At first I wondered if I was listening to the Jon Stuart show.

Huh? If the Senator really wants the "excess" housing stock absorbed, why not let the Americans who finally can afford it be the ones to absorb it. The Senator needs to work on the banks, to allow lending to credit worthy borrowers who are being denied. That's good starter level housing he wants to sell off to overseas buyers!

Oct. 25 2011 02:19 PM
Amy from Manhattan

I can hear it now: "What? Schumer wants to help foreigners buy *American* homes instead of helping Americans do it?" Is he *trying* to give ammunition to the far right?

Wait...aren't they the ones standing in the way of efforts to help those Americans? Not that that would stop them....

Oct. 25 2011 12:38 PM
John Weaver from Melbourne Fl, ex New Yorker

Don’t get it, no shortage of foreign real estate money in US particularly NYC?

In addition there is a federal program known as EB-5 that I believe is set up to bring capital in to fund new businesses from other countries that includeds one person and family who can secure citizenship as a manager of the enterprize.

I understanding it is intended to foster technology development but real estate is allowed. Chinese investors ($$$) favor real estate because it can be evaluated from a distance.

What happened to that program and why is it not sufficient to Sen. Schumer?


Oct. 25 2011 11:37 AM
Merrill Clark from New York

I am an immigration attorney and a Democrat. However, Senator Schumer's plan doesn't cut it.
First, most wealthy people are already able to obtain a tourist visa to visit the US. They are already able to purchase property. Second, many wealthy people who are not US citizens do not want to subject all of their world income to US taxes.

Better is to attract the middle class. How about legalizing undocumented people who own homes? Better how about legalizing all of the undocumented people who do not have serious criminal records. They and we need it.

Oct. 25 2011 11:23 AM

OK, I like the cash requirement and prohibition to work. Vancouver, Canada has done exactly this -- attracted rich, often scared Chinese (and their school aged kids/grandkids) -- to great economic success for the entire nation.

I also like the minimum 180 days in the USA requirement -- clever. That's the magic number for being required to pay income tax here!

Oct. 25 2011 11:21 AM
Aaron from Harlem

This seems like a good idea for the government coffers- but its exactly why NYC is soon to lose all of its creatives as they have been priced out at every turn by euro trash...

Oct. 25 2011 11:19 AM

Received appraisal on a 3 bed home in Larchmont for a refi yesterday. Down 50k since just over a year agao and down 140K since bought in late 2004. Don't even wnat to think about the money put into upgrades on top of that. Have to decide if we can put down another payment
to get the refi mortgage.

Oct. 25 2011 11:19 AM
Inquisigal from Brooklyn

What I want to know is why is the real estate "market" conversation always framed as strictly negative by the media?

The other side to the story is that the overall price of homes across the country (and especially here in NYC) rose so much, with the availability of easy credit, that they were no where near in line with real incomes across the US.

If overall housing prices are down, and now closer to what real income can purchase, this is actually a good thing, not a bad thing. It means that people will no longer take huge, stock market-like risks just to own a home, which previously drove the prices up artificially.

While that doesn't take into consideration people who lost jobs, and can't afford their mortgage, which is a different set of challenges, it infuriates me every time I hear stories reported on the housing market like the ONLY default direction it should go is up.

We need to examine that perspective, not keep parroting it.

Oct. 25 2011 11:19 AM
The Truth from Becky

NOOOO not missed any payments, have NOT been late in the past 6 MONTHS!!

Oct. 25 2011 11:18 AM
MichaelB from Morningside Heights

I tried to refinance a condo mortgage with Chase, the holder of the current loan, an adjustable rate mortgage.

I was "late" with one payment, this past July, when the ARM rate adjusted. I had set my auto-bill pay to pay the mortgage every month UNTIL July, when I knew the rate would be adjusted. Then I forgot to check the new payment and change my auto-bill pay to pay the new amount.

Long story-short, they got in touch with me, I sent out a payment immediately and my credit union shows that the check cleared on 8/1.

Other than that, I have impeccable credit ratings -- all over 800, have NEVER carried any credit card balances, and I almost always pay an extra $100 on my mortgage payment every month -- AND THEY (Chase) STILL refused to even consider refinancing the loan!!

I mean, if a borrower such as me can't qualify to refinance, who can??

No wonder our country is in such a poor condition -- the entire thing is totally Kafkaesque, with the mortgage thing swinging from one extreme to another. Not a recipe for a stable economic foundation.

Oct. 25 2011 11:16 AM
Nick from UWS

Selling off visas in exchange for foreign purchase US real estate? Isn't it enough that China has bought huge swaths of American real estate and infrastructure?

I never heard a more repulsive idea in my life. So that God knows who can get a foothold in this country? Once again we have stomach-turning evidence of the US government putting foreign and corporate interests ahead of the American people themselves. Absolutely traitorous.

Oct. 25 2011 11:16 AM
Asaf Soof from Union Sq

If done right this is a great idea. Immigrants are the force that move this country forward. The US needs to have a plan of how to draw more QUALITY (educated, well to do, motivated) newcomers.
Need to have a system to weed out the criminals, and those who borrow to get the money, and fake educated ones.

Oct. 25 2011 11:14 AM

Charles Schumer's idiotic idea is aimed _exclusively_ at re-inflating the housing bubble. It does _less_ than nothing to address the issue of domestic demand. The reason that the housing market is in the dumps is twofold:

1. Housing prices have yet to drop down to where they would be if there had been no housing bubble (that is, if prices had continued along pre-bubble trend lines). That's a basic fact of economic history.

2. Americans are losing wealth (except, of course, for corporate executives and Wall Street). Millions are unemployed. Millions more are at risk of unemployment or are under-employed. And a huge majority of Americans are seeing their income decline relative to inflation.

In short, demand _cannot_ sustain the prices that Wall Street representatives like Chuck Schumer want to pretend are realistic. Supply and demand. Why does basic economics go out the window when moderates and conservatives want to toady for Wall Street?

Oct. 25 2011 11:13 AM

What is it exactly?

A temporary visa? A green card? A green card that doesn't allow you to work?

Oct. 25 2011 11:10 AM

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