Thursday, July 12, 2012

Bloomberg News: Hurray for Foreclosures!

So, in the aftermath of the housing boom, the housing market needed a massive price correction. That obviously happened. Banks are feeling a bit more enthusiastic about the upward slope of housing prices, so, per Bloomberg News, they're taking possession of some of the houses they're owed.

But I'm unsure that an uptick in foreclosures represents a 'rebound' in the housing market, for one important reason: there's the shadow inventory, of houses held by banks but not on the market, and then there's the shadow-shadow inventory, of houses which are presently delinquent but which haven't been foreclosed upon. As houses start to filter out of the shadow inventory and onto the market, the banks have decided to refill that inventory from the bottom by foreclosing on more homeowners.

Simply proceeding with business-as-usual foreclosures prolongs the pain: the banking system needs to simply register the losses and call it good, rather than attempting to liquidate the existing balance of housing stock. As it stands, the banking system is simply emptying out more houses to sell to people who can't afford them.

And that's all dark cloud, and no silver lining.
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