Fast Reposessions May Help Housing Market

By October 15, 2009House Repossession

This hot off the press from news agency Reuters:

hot_off_press

Government-backed lenders have been using a so-called ‘delay and pray’ strategy when it comes to repossessing properties but, according to experts, this strategy is not a long-term option.  According to Stuart Law, chief executive of property investment boutique Assetz, European housing markets need to see more repossessions in 2010 to bring limp credit markets back to life, or months of mortgage scarcity could morph into years of stunted house prices, fewer sales and more costly home loans.

This argument seems to be supported by the US, where after years of plunging prices the market is slowly recovering –  but only after lenders ordered millions of foreclosure filings against indebted homeowners.

Experts are not advising such a vast wave of foreclosures, which they say would harm the European recovery.  However, they do believe that a smaller burst of sales may aid price recovery and lift credit flows between borrower and bank.

Nitesh Shah, economist for Moody’s Investment Service, said, “we share the opinion that average house prices have not moved sufficiently to remove the froth from the market but that doesn’t mean another bubble is in the making, it just means prices could move downwards for a very long period of time. This kind of gentle correction could be aided by a slow trickle of repossessions which could promote transactions without destabilising the system – subject to sufficient buyer demand to purchase these assets from the banks.”

Shah goes on to say, “ironically, the fact that banks have made credit supply much tighter than a few years ago means they are struggling to shift the properties they themselves are trying to sell.”

If the banks take this advice, this could turn out to be quite an investors’s market.

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