A KeyBank Foreclosure Draws Fire

A KeyBank Foreclosure

Headlines like this cause pause for reflection, as a culture, do we ever stop and think, “What will be the unintended consequences from my actions today?”  I personally don’t think we do, but let’s look at this very closely, banks and lenders originated the bad loans, aggressively put money on the street and then securitized them with a risky ponzi scheme. What would make any of us believe, that they would be any better at collecting the debt when the loans went bad than they were creating them?  This isn’t about bashing banks, but we sure could, couldn’t we?

The Denver History of County Foreclosures - Mid Year 2010

I’ve been comparing Denver’s Residential Downturn starting in the last decade with one from the late 1980’s for several years now.  As you can see from the image to the left, Denver Metro Residents took full advantage of plentiful and aggressively priced mortgage money coming out of the slump from the 1980s. This precipitated the drama to come.

Looking back on the average price trend in the Metro Area, we hit our peak in the 2006 – 2007 window.  If we look closely at the next chart, some of our markets have fallen all the way back to 2000 – 2002 Average Price-

History of Denver's Residential Average Prices Mid Year 2010

Levels.  From additional research, we are observing true price stability and in some geographic areas under $200K, we’ve observed price appreciation.  On the other hand, as I reported last week, on the high end, over $1M, we may be identifying a new bottom currently.  This could mean some price stability that grows from the bottom as we absorb the vacant inventory.  The strength from a multiple transaction market that starts at the lowest wrung on the ladder can not be under estimated.  An “organic market” has far reaching strength over the long term.

So, to answer the question, what’s next after “the foreclosure fire”, let’s run with that metaphor.  Every summer we have fires across the West, and what we’ve learned is that the green under brush starts back with the first spring rains.  Let’s assume from the graphics above that we are at or near the end of the foreclosure cycle fire and the short sale cycle runs for at least 2 more years.  At that point, the fire might be out.

This puts us into the end of 2012.  But, during that time, several things start to grow beneath the old growth.  That strong organic market just mentioned starts to mature. Home Builders are at the lowest level of production in their history.  The hypothesis can be made that builder inventory will not measurably add to supply.  We can also assume, that the lowest rates in history that we have been enjoying this year (2010) will start to reduce consumer’s monthly payments.  We can safely assume that this in turn will increase the consumer’s disposable income.  Additionally, many former homeowners are now renting due to credit, job history and down payment availability, they too are enjoying a return to a more favorable level of disposable income as renting is less expensive than owning right now.  All of this bodes well for the ground to start greening up, the birds and the prey to return and a new market to develop from within!

So after the fire, there will be scorched earth, there will be smoldering embers, there will be displaced residents, there will be family trauma, there will be many relocations and there will be change.  Moving forward in time, from this window it looks a little bit more clear and a little bit more open than it did a year ago.  Let’s look at our decisions today with the intent on making positive outcomes, the unintended negative outcomes noted in the article that lead us here just don’t make sense.