Real Estate Strangeness

Lunch with a couple of great people today, Marci Jackman and Mary Olsen, both of Keller Williams South Valley Realty.  We hashed over a lot of points, but the two biggest were saved for last.  First, none of us could figure out why there has been an up-tick in housing starts.  The market is awash with inventory, fire-sale prices are the norm, the move-up market is shriveled because so many are upside down and can't move up, and too few people have a steady enough income to support a 30-year risk.  Why build more?  I don't know.  I suspect it's a combination of irrational optimism over what the current, historically low mortgage rates might produce (People must start borrowing at these rates.  Of course someone still has to be willing to lend, but don't sweat details.) and force of habit.  The old shark thinks that if it just keeps moving forward, everything will be alright.  I think not.

Then we kicked around why, after picking up the loan mod pace for a few months, have all the banks gotten back on the snail train.  This one I think is pretty simple.  All the way through HAMP, they sat on the applications for the same reason they sat on the foreclosures: As long as they stalled, they could carry the paper at book value instead of marking it to market.  It was extend and pretend.  Then HAMP started winding up, and they pushed through the applications they really wanted to push through.  Now HAMP is gone, it's a new program, and it's back to extend and pretend.  I also think that's why banks are pushing for deficiency notes on mods and short sales.  So long as they hold paper for the balance of the loan, however unproductive, they can keep pretending book value is reality.  What a world.