What’s the Truth About the Real Estate Recovery?

By Eddie Speed, Editor, REal Income Alert

I’ve no doubt you’ve seen headlines like these lately…

“Mortgage Delinquencies Down”

“Foreclosure Rates Down”

“Home Prices Up”

“Fewer Homes Have Negative Equity”

These same media outlets are also touting an economic recovery with headlines like…

“Employment is Getting Better”

“The Recovery is in Place”

“Banks Making Profits”

If you believe these headlines, not only is the real-estate market in full recovery, but the U.S. economy is on a major upswing.

I don’t believe them. Not one word.

The reality of this “recovery” is not quite so rosy. It’s actually downright scary in some areas.

That’s why we must make decisions based on facts, not headlines.

So over the next few weeks I’ll show you the real story behind some of the numbers the media uses to make their wild and dangerous claims.

I’ll start with the most important. That is: The numbers are lying.

Look at this chart of mortgage delinquencies and foreclosures…

See larger image

Sure, the numbers are down from their peak in 2010. But they’re still extreme. More importantly, these numbers are simply not representative of reality, particularly when it comes to the definition of a “re-fi.”

You see, once the borrower on a delinquent loan files the paperwork to refinance (typically through the Home Affordable Refinance Program or HARP), the loan is immediately re-categorized as a re-fi. So it’s no longer considered delinquent, even though the applicant has merely applied to refinance and nothing else has changed.

Also, these numbers don’t include shadow inventories (i.e., delinquent notes not yet in foreclosure). Lenders don’t need to report shadow inventories of loans not backed by government-sponsored entities such as Fannie Mae and Freddie Mac). Consequently, most lenders simply don’t report what we believe could be a significant number of delinquent notes.

While this inventory will decrease as small businesses and investors continue moving into this space, there is a tremendous opportunity to buy these non-performing real estate loans at massive discounts over the next five to seven years.

In fact, during 32 years in this industry we have never seen an opportunity to buy these assets at such low prices, and those of you who get in early will do exceptionally well.

Next week, I’ll unpack the numbers behind HARP to show you another facet of the real story of the property market. Be sure to tune in then.

Categories: Housing Market

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