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Podcast:  Colleen Edwards interviews John Burns, Economist

Any talk about the near future in real estate has to include a discussion of the impact of foreclosures on the market.  With all of the foreclosed properties having hit the market already, have we worked our way through that problem?

No way, says John Burns, real estate analyst and economist.  Foreclosures are going to continue to rise, he says, because of the resets coming due for the option ARMS made back in 2004 and 2005, at the top of the market.

In fact, according to Business Week, as many as 1.3 million homeowners took out as much as $389 billion in option ARMS (Adjustable Rate Mortgages) in 2004-05. The attraction of the program was that a homeowner could refinance at a bargain rate and cut their payments quite literally in half.  But pricing has gone down dramatically since then, and now they can’t count on rising equity to bail them out.

But back to John Burns.  He says that this tsunami of foreclosures will not flood the market equally.  There is some high ground here, as these coming foreclosures will be submarket specific, especially concentrated in the inner cities and outlying areas, where these lending practices proliferated.

The result of more foreclosures is a trend toward more conservative lending.  The days of having very little down and a low interest rate are over.  Buyers are going to need more skin in the game.  But the rewards are great:  people will look back at this market and kick themselves for not taking advantage of the bargains it offered.