I might cover the foreclosure market on these pages, but the market that I cover on those days is limited to the market that I cover on all the other days. If the foreclosure in question doesn’t somehow affect the Lake Geneva vacation home market, then it doesn’t get mentioned here. Not now, not ever. But the foreclosure scene in Walworth County, which is decidedly different from the scene in the Lake Geneva resort market, does matter. It matters not because of what it does to the price of a lakefront home on Snake Road, but because of what that market means to the broader markets both locally, regionally, and nationally.
Today, there were just two sales posted in the MLS. Those two sales were both REO properties, selling in the $60k range. One on some street in Delavan and the other on some other street in Walworth. Those two sales will not impact the price of your Country Club Estates cottage, nor will they provide a boost of liquidity to the still silent Geneva lakefront condo market, but they still matter. I’m seeing foreclosure activity on a county level at a consistent clip, neither regressing or escalating. The foreclosures exist, they will continue to do so, and this will be the same today as it is tomorrow.
The culprit for this ongoing foreclosure has little to do with unemployment rates, which is why even as that rate slowly drops you’ll still see foreclosures hold mostly steady. Foreclosures have nothing to do with interest rates, nor will they be mitigated by Obama’s latest proposal that involves more money being moved from the paying to the receiving. These foreclosures have everything to do with negative equity, and no amount of modest improvement will save a homeowner who owes $400k on a $250k home. Percentage interest rates changes will not help. A new, potentially better job won’t either. A write down of principal is this owner’s only hope, and even the most aggressive write downs shouldn’t approach 40% of the outstanding loan.
But I’m not in favor of any write downs, let alone one totaling 40%. The problem is not the economic mood of the country, the problem is negative equity and this will be an ongoing problem as any recovery in housing will likely mean what it already has: an uptick in volume and a stabilization of prices. No one foresees a housing recovery with immediate and swift gains in actual real estate value. So if foreclosures are going to continue, why is it that the general attitude towards real estate seems to be improving? Why are markets a touch more liquid than they were some time ago, and why does 2012 look to be better than 2011 which was better than 2010?
It comes back to our dearest and closest friend, confidence. While attending a basketball game a week or two ago, I was sitting near some friends who were discussing real estate. They were talking about buying it. Foreclosures, with specificity. They were engaged in the market, and they were activity seeking foreclosures to buy and flip or perhaps just to buy and rent until the days grow longer and our real estate forecasts brighter. It’s this confidence in real estate even at the ground floor of REO scraps that will fuel a recovery in real estate, and that confidence appears to be growing. Cheap REO’s that were viewed as being scary or somehow foreign during 2008 and 2009 are now viewed as opportunities that will not last forever. Investors are no longer uncomfortable with prices as they were then, instead they seem pleased with the pricing levels and in that acceptance of prices they have established a market bottom.
When the Lake Geneva lakefront market closes 2012, I expect that it will be the best sales year among the last four. When this happens, it will be a wonderful thing, but it won’t necessarily be a telling thing. If the wealthy are ready to buy again, which they have proven they are, this is fantastic but it is not an indicator of the health of the national market. The affluent buying expensive things is a relative sure thing, and for this Lake Geneva and every upper bracket market anywhere is pleased. But in order to truly gauge the nation’s appetite for real estate, a $60k sale in Walworth and another in Delavan will reveal much more. Confidence is returning to a market near you, and it’s showing itself one $60k sale at a time.
Photo from Glenwood Springs by Ideal Impressions Photography.