Megan McCardle is doing a bit of whining over at the Atlantic about her search for a house, which–trust me, I get it, as I’m looking for a house in West Adams, which is no picnic. She writes:
The only way to break a lease is to be a single-family owner who wants to take occupancy. The bank has to let the tenant’s lease run before they are evicted, as well as give them ninety days notice of the intent to vacate the property. Given the difficulties of selling a house that cannot be shown, a lot of banks are choosing to do just that. Others are putting it on the market and then finding that, surprise! they somehow never can schedule a showing. Yet the banks are understandably unwilling to drag the tenants into court, which is very time consuming, and a huge burden on already overwhelmed administration.
This tone is one of the reasons I refer to “whining.” Yeah, I face the same problem. Of the few places that are for sale in West Adams, many are tied up in leases. But I actually think that protecting tenants from the financial irresponsibilities of landlords is a good thing, and while it’s not convenient, it does keep people from losing their housing, and even though you can’t tell it from US housing policy very often, one of the goals of housing policy should be to help people be sheltered rather than to help them be homeowners.
And as one of those renters who didn’t exercise my rights to refuse to have the place shown, let me tell you: we regretted our cooperation with our very nice and generally wonderful landlord as her entitled, lying scumbag of a realtor wanted in the place night and day and threw a tantrum when I finally said no because he “had buyers from out of town who couldn’t reschedule” so we gave in at incredible inconvenience to us. Turns out: the buyer from out of town was another realtor, from the Valley. Some realtors are just unethical, period, and the scummier they are, the more likely they are to treat renters like something they scraped off the bottom of their shoes.
Unlike my realtor who is simply awesome in every possible dimension of awesome: Bill Cooper with the Loft Experts.
McCardle’s other point I actually think, is a bigger problem for me:
The broader nationwide problem is that banks have a huge backlog of these bad loans, which means first, that they simply don’t have the adminstrative capacity to put them all on the market at once, and second, that at least in the case of the larger lenders, they are trying to dribble them out over time and avoid crushing the market.
For every real sale in West Adams I can find on Zillow or MLS, there are about 20 foreclosures, I’d say. And you can’t find anything about them. I’m not even talking about pre-foreclosures or places where you have to protect the identity of owner-occupiers still here. I’m talking places in full foreclosure, where banks just want you to hand them cash based on no information, not even a walk-through, and cash equal to the redonkulous mortgage they floated from 2004 to 2007.
So things are supposedly so great for new home buyers now, but in my experience, they really are not, and the same is true for McCardle as well it seems.
I’m trying to figure the economics of the shadow inventory for banks. I need to learn more about this. I’m wondering if banks are really holding on to the inventory to avoid crashing the market. It seems like there would be enough reason for banks to want to let their inventory go–rather than be the bank who winds up getting caught for “too long.” But there are also problems with being the first hold-out to let go. But it’s not like banks can expect to hold onto these houses for as long as it suits them without putting maintenance money into them: that’s a fast way to holding an asset that is worth even less than its compressed market value. I need to read more and think more to understand this problem. My suspicion is that banks are just overwhelmed by the management problem and haven’t figured out how to move the properties. In the case of West Adams, it’s a hot zone for foreclosures, particularly south of Exposition, and so holding on strategically would mean a pretty long hold-out horizon.
Anyway, this should give some backseat advice-givers pause about how “now is a good time to buy.”
HT to Andrew Gellman