The Basel III (Bank Regulation) requirements were discussed in exhausted terms this weekend, and there are many questions left unanswered. These details are important as we know that Banks are being forced to write off billions of dollars in loans to properties that are now vacant due to foreclosures.
An article in the WSJ today highlights this point:
Even though mortgage defaults kept mounting, housing markets began to stabilize early last year as low prices and government interventions broke the downward spiral. Policy makers spurred demand for homes by holding down mortgage rates, offering tax credits for buyers, and extending low-down-payment loans through the Federal Housing Administration.
The government also attacked the supply problem. Regulators relaxed mark-to-market accounting rules, giving banks more flexibility in valuing certain real-estate assets and removing some of the impetus for banks to quickly foreclose.
How BIG is the next “wave” of foreclosures? Well, Moody’s believes that U.S. banks have already written off about two-thirds of the bad loans they’re likely to face through 2011, and that bank asset quality issues are past the peak. The agency estimated that 68 percent of residential mortgage losses have been taken, but only 49 percent of commercial real estate losses. Banks have already been setting aside less each month in reserves, indicating that they think they are ready for next round.
The BASEL III requirements that came out this weekend seem to be in favor of Big Banks – which I guess makes sense if you are betting that BofA (for instance) will be one of the banks that has to write off more as they liquidate property. The regulators seem to be (JMHO) on a see-saw unable to decide which way to pressure “influence” bank action.
We are watching how banks manage the foreclosed homes they own because, unlike home owners, banks often are much quicker to slash prices to unload properties as quickly as possible.
In the Triangle, we don’t have a market with prices already way too high – and we don’t have a HUGE number of foreclosure that other areas have. Charlotte, though, is one of the markets that could be hurt according to the WSJ.
By those metrics, prices are actually undervalued in markets that have already seen huge declines, such as Las Vegas, Phoenix and Los Angeles. But Moody’s data show that prices remain “significantly overvalued” elsewhere, including Boston; New York; Seattle; Orange County, Calif., and Charlotte, N.C. Markets in both camps face supply imbalances that will pressure prices for years.
As Housing Markets are seen falling, this will also effect mortgage lending practices… meaning that “falling markets” generally have a tougher set of rules and restrictions than those that are stable.
As for mortgage interest rates – we believe we’ve seen the bottom of this cycle. Mortgage rates are up almost a quarter of a percent in interest from 10 days ago – but still really, really, really CHEAP.
If you are considering a home purchase – you need the advice of people who are watching the market! We work with some of the most talented Real Estate Agents in the Country! Call Steve and Eleanor Thorne, 919-649-5058 for more information!