Tuesday, July 27, 2010

Homeowner limbo is the new purgatory for our markets

According to Corelogic, a company that tracks mortgage performance, there are nearly 12,000 homeowners in default in the San Jose metro area. A number of them are in a new form of limbo where the bank tells them they're in default but hasn't moved forward with foreclosure or authorized a short sale. This creates a very dark market for our local market because we don't know if that inventory will become available or not.

The homeowners themselves are stuck in limbo because the stay in the homes without paying rent. Others are still negotiating with their banks but not making any progress. In the meantime, banks and HOAs don't get paid.

There are several major issues this could cause for our local markets. These include:

- A large surge in inventory, especially at the low end
- A possible increase in HOAs going bankrupt due to unpaid fees
- A decline in neighborhood quality as poor homeowners abandon maintenance

In the Los Altos area, this isn't a problem. It's also not an issue in Mountain View, Palo Alto, or Sunnyvale which all neighbor our town. However, as we saw during the downturn, what hurts one market will hurt us all - eventually.

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