The Law of Unintended Consequences is omnipresent but seems to be hyperactive with respect to government programs.
Calculated Risk deals with the effects of intervention in the housing market. When the government stepped into the housing crisis, it was inevitable that perverse incentives would be created:
One of unintended consequences of the government foreclosure delaying strategy (probably aimed at limiting supply and supporting house prices), is that strategic defaults have gained fairly widespread acceptance. And that means the eventual cost to the taxpayer will be higher than if the lenders had either modified the loans, or foreclosed, or approved a short sale, within about 270 days.
By deliberately attempting to slow down foreclosures, the government has created a situation whereby it becomes more tempting to “walk away” from one’s home. The process of doing so does not mean you are homeless, at least not for a prolonged period of time. Rather it means you get to stay in your home and not pay mortgage payments for quite a while.
On Monday David Streitfeld wrote in the NY Times: Owners Stop Paying Mortgages, and Stop Fretting
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
…
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property …
How long will it be before we start seeing TV ads stating: “Need extra Money. Call us to see how you can get it from your home — for FREE!” This route seems to be better than the old-fashioned bill consolidation loan.
Do you consider the housing crisis is over and we have entered a new real estate current market? I consider the economy requirements to fully recover before we have adequate men and women confident enought to invest in new homes. In this market its difficult to make a long term investment and burden oneself with a lot more debt with as much uncertainty is inside the air.
I do not consider the housing crisis over. Much more to come, I fear
As a broke-home-builder I concur there is much more to come. My final two projects sat on the market unsold for 3 years. That’s a lot of interest payments! One sold for 50K below the (former) appraised value, the second, 125K below the (former) appraised value and 50K below the building costs.
I finally sold my properties, but not without huge losses. I am currently at year 11 on a 15 year mortgage on my personal residence…and now there is nothing I can do to save my home. I, too, will end up a casualty.
I recently read a realtor report, “Contracts are up.” What a joke. I assume most are contingent and won’t happen, or the contracts are on short-sales, foreclosed homes or desperate builders trying to liquidate. So much for recovery.