Knoxville Real Estate Market Recovery: What Needs To Be Done?
Economic recovery in Knoxville, and other parts of the nation, are largely dependent on the stabilization and restoration of the real estate market, according to a recent report put out by the Federal Reserve Board. The report, which is entitled, The U.S. Housing Market: Current Conditions and Policy Considerations, addresses problems facing the current real estate market and outlines potential solutions to the problems.
With housing prices having fallen 33% since 2006, according to the report, there are three major issues that are still causing the real estate market to remain unstable: (1) an excess is vacant houses that remain on the real estate market, many of which are foreclosures, (2) a huge decrease in the supply of mortgage credit, (3) and the high cost that foreclosures take on homeowners, communities, and mortgage lenders. These issues along with high unemployment rates and lack of faith in the economy are causing the real estate market to not stabilize. With so many unsold homes on the market, housing prices across the country have remained stagnant or decreased.
So what does the report suggest to stabilize the Knoxville real estate market, and others across the nation?
In order to deal with the excess of vacant homes, the report suggests turning real-estate owned (REO) properties into rentals. Over the last year, the cost of rent has increased and vacancies in multi-family rental properties has decreased, according to the report. With so many homeowners not wanting to purchase homes or lacking the credit to do so, the rental market has seen increased demands in recent years. One of the main reasons the conversion of REO-to-rental properties has not taken place is that is can be difficult for one single investor to make a large scale difference. Fannie Mae, Freddie Mac, and FHA hold about one-half the REO inventory, so the report suggests in order to make a significant difference in the market, they would need to allow bulk sales to investors in large communities, with a high inventory of REO properties, like Atlanta or Chicago. The FHA is currently reviewing over 4,000 plans submitted to them last August to help make the REO-to-rental successful.
The paper also suggests that the decrease in available mortgage credit and the high cost of that foreclosures take on homeowners, communities, and lenders, is also a major hindrance to growth in the housing market. In order to successfully deal with the situation, the report suggests that lenders increase lending to qualified home buyers. While lenders should still stick to a strict loan underwriting process, loans have been increasing harder to get in recent years, even for those who are qualified. According to the 2011 NAR Member Profile, realtors said the 34% of buyers where facing issues with getting a loan, thus preventing them from buying a house. The paper also calls for lenders to make loan modifications and short sales more efficient for homeowners who are underwater. Currently, loan modifications and short sales are painstakingly slow, which causes many homeowners to end up in foreclosure anyhow. The paper also urges lenders to make refinancing easier for homeowners who do not have enough equity or who don’t quite have the credit, but who are still current on their payments.
What do you think of this report? Will it help or hurt the Knoxville real estate market?