As I follow the never-ending yard sale that is the national foreclosure scene, I’m slowly finding that waiting for a change in this market is as great of a test of my patience as is my desire for November of 2012 to arrive. Some things just can’t happen soon enough. The foreclosure market on a national level remains miserable. The foreclosure scene in the Walworth County primary home market also remains firmly stuck in the thickest of mud. The Lake Geneva vacation market continues to elude any significant damage, but these days it looks more like Keanu dodging bullets than Mr. Reeves allowing so many of these bullets to merely bounce off of him.
All brokers understand at least some elements of the foreclosure market in their individual community. Unfortunately, most stop short when it comes to checking active lis pendens (though this phenomenon is growing locally thanks to my illuminous blog), and most fail to understand the depth of the trouble affecting any specific market. By routinely checking the lis pendens filings and the sheriff’s sale notices, it is fairly painless to ascertain the general mood of the foreclosure situation in any given market. This is what I do for Lake Geneva, and it is my burden. I’ve come to notice a few things over recent months, and these things that I’ve learned offer both good and bad news, depending on the trajectory of your individual aim.
The vacation home market surrounding Lake Geneva appears to be plugging along in much the same fashion as it has for the past three years of our national crisis. There are not many foreclosures, but they exist. There is a steady trickle, but no flood waters that might seek new levels and erode the foundation of what remains a very stable market. I see foreclosure issues as a whole continuing this established pattern for the foreseeable future, and in saying that I should warn you- I have very good eyesight. At least after I put my contacts in, and as of now, they are in and squinting at the horizon. I see there what I see here, more foreclosures. Thankfully, the market has proven quite adept at absorbing a spoon feeding of distressed sales, and I see no end to the market’s appetite.
The primary market scene in Walworth County is much different. Foreclosures continue at a fairly rapid pace, and I see no end to this more potent stream of REO inventory. I must admit to being confused by the continued pace of foreclosures here. I understand economic times are tough. I really do. I also understand that Walworth County is an economically stable region. We have a population that generally earns a bit more than the state average, and we tend to be a bit more sensible than much of the state (Madison and Milwaukee, you should burn at this thinly veiled reference). Yet in spite of these factors, we appear to have given into the foreclosure crisis in a way that denies our sensibilities. When I start thinking this way, I need to remind myself, and perhaps you, why foreclosures are such a problem, and why that problem will more than likely continue for many more years.
Foreclosures are not only brought on by job loss and illness. We are told that this is the case by the evening news, but this is not what is driving the foreclosure markets. Negative equity is the culprit, and when you combine negative equity with social acceptance of foreclosure, there is nothing to stop the barrage. This is not to say that every foreclosure is voluntary, as most are not. But it is to say that people who might otherwise hang on and see their obligations through are walking from their homes because it makes better financial sense to do so. If my home is worth $300k and I owe $450k on it, largely because I bought it for $450k and borrowed every last cent from it (but did you see the pictures from my Cancun vacation??), why should I keep it? I’ll just let the bank take my home, after living mortgage free for as many as 12 months, then I’ll take out my appliances and sell those on Craigslist before finally settling in as a renter for the next five years of my life.
See why this new foreclosure cycle is proving so difficult to break? If negative equity is the root cause, and we all agree that equity will take years to regain, who can say this cycle will be coming to an end anytime soon? While Obama’s HAMP program was a complete and utter failure, I do not blame the administration for the continuance of this crisis. There is little that can be done to change this phenomenon, and I am not in agreement with those who say the administration should force banks to grant principal reductions, which is, in fact, the only way to stop this runaway train. That concept forces banks and their shareholders to accept deeper losses in an attempt at keeping Joe and Mary Homeowner in a home that they can’t afford anyway. The concept of nationalizing losses is not something I agree with.
Back at Lake Geneva, I see the most concentrated foreclosure action affecting the Abbey Condo-tel market, the Grand Geneva timeshare “market”, and a continual stream in Geneva National. I can’t do enough to defend Geneva National these days, as the added foreclosures heap more and more stigma on this already soft market. The foreclosures here should not be feared, they should be expected. To take it further, these foreclosures, perhaps a small handful every few months, should not be viewed as an insurmountable obstacle to this market. Geneva National is huge. Like 1100 or so units huge. A few foreclosures in a development that big shouldn’t be a concern. 30 short sales and a dozen foreclosures in a Chicago condo building with 150 units is cause for concern, but a few here and there in GN isn’t something to worry too much about. They don’t help the market there, but they’re not nearly as disastrous as many would have you believe.
It will continue, this foreclosure issue. It will continue for years, and as it does, it will allow new opportunities for new buyers. Lake Lawn Lodge is a prime example of how a foreclosure can be a long term benefit. There is nothing good about the failure of Lake Lawn Lodge to live up to their commitment to their lenders, in fact it is shameful in my opinion. But the clearing away of too much debt has put the new owners in an enviable position. Lake Lawn will survive, and without the heavy burden of unsustainable debt, Lake Lawn is positioned to be a fixture on the Delavan lakefront for decades, or generations to come. If you take nothing else out of this post, just remember that the foreclosure crisis on a national level will take years to run its course. At Lake Geneva, the trickle continues, but it remains but a drop in our 5200 acre bucket of crystal clear water.