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Local Housing Market Recovery Tied to Foreclosure Processing

 “Potomac Gap” offers further proof that Maryland legislation is slowing our region’s economic recovery.

Well folks, spring is in full swing, which means that all eyes turn once again to the housing market with fervent hopes that 2012 will mark the beginning of a sustained recovery in real estate.

There is some good news.

Foreclosures continue to fall in Frederick County, down to 55 in February from 65 in December. More importantly, the difference between the average home sales prices and average foreclosed home prices declined significantly. In February the average difference was $27,677, versus $91,614 last March!

Unfortunately, the housing market soothsayers are pointing to another surge in foreclosures this year, and all indications are that the Maryland (and by extension Frederick County) real estate market is going to be caught in the cross hairs.

As one expert noted, “The pig is starting to move through the python.”

Bloomberg News published an article in February pointing out that the housing markets of Fairfax County, Virginia and Montgomery County, Maryland are heading in opposite directions.

Both of these counties serve the same job market and have a nearly identical population size and demographic. So why has this so-called “Potomac Gap” developed between the performance of their respective housing markets? According to housing economists, this has happened because Virginia doesn’t require court approval to foreclose on delinquent home buyers.

This trend is not unique to this region. Economists are noting that throughout the U.S., the housing market recovery of the 24 states that require court mediated foreclosure is significantly lagging behind those states that do not.

In 2008, and then again in 2010, Maryland lawmakers passed legislation that gave homeowners more time to stay in their homes and required a court mediation process. This resulted in significant delays to Maryland’s foreclosure process.

Add to that the voluntary halt in foreclosures by major lenders as the “robosigning” settlement was finalized, and Frederick now has a foreclosure backlog of approximately 575 homes (about 60% of these are “pre-foreclosure” and are not listed yet). That may not sound like a lot–until you realize there are only 850 active home listings total in the county right now!

Once again, Maryland’s economy feels the effects of too much government intervention.

Maryland’s housing market will recover much faster if our lawmakers roll back some of that foreclosure legislation.

Maryland’s foreclosure process was once known as “the rocket docket” because it was so streamlined (as little as 15 days from borrower default to foreclosure sale). Court involvement was required to protect the homeowner and insure no lender improprieties, but deadlines were much tighter to move the process along faster.

There is no good argument NOT to pursue re-streamlining Maryland’s foreclosure process.  In fact, studies show that the longer process does not result in borrowers finding ways to make their mortgage work. Instead, an increased number choose strategic defaults, live in their homes without making payments, and ultimately delay the housing recovery.

We’ve written in the MacRo Report about a terrific collaboration between Frederick County government and local Frederick nonprofits to utilize our foreclosure inventory for affordable housing. This is a brilliant idea that solves two problems at once with very little taxpayer funding required to make it happen.

We are in desperate need of that kind of smart thinking at the state level, and soon, or Maryland’s economy will lag for years.

Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes for TheTentacle.com and Want2Dish.com.

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