Macro Economics
One Short Sale Too Many

Related Links
Discussion Boards

By sonnypage
April 16, 2009

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

Most of you here on METAR know that my wife and I are Realtors and associate brokers who live and practice real estate north of Atlanta; we are north of the Chattahoochee River out in Roswell and Alpharetta. So how is our spring market shaping up? In a word, it's grim. The good news is that we booked two very nice contracts in early April, a buyer at $625,000 and a seller at $825,000. These are very nice contracts, but we need many more. I am looking at activity as my primary marker for the health of the real estate market and it's still slow. I therefore am seeing nothing that says better days are right around the corner.

I have written before of our lake house; the second home we bought up on Lake Lanier back in January, 2007. It has become a casualty of the economic crisis; we sold it last month in a short sale. I realistically really did not think we had a choice. Our income has been sharply reduced by this crisis, and last year our stock portfolio took a hit as well. What really got my attention was the severe sell off in equities this past October. The lake house represented the single biggest non essential item in our budget that we could throw over the side. I have no idea when, if ever, our business will pick up, so we have shifted into long term survival mode. That seems to be what many other Americans have done as well, which is a big part of the problem our government and central bank are facing as they try to jump start the economy.

Here is a quick snap shot of a short sale. We paid $420,000 in January, 2007, on a lake house that a conservative lake appraiser priced at $450,000. I thought then, and still think, we got a great deal. Twenty six months later, in the worst real estate debacle since the great depression, we were still able to sell for $385,000. Our loss was our buyer's gain; it is still a great house in a great location. To add insult to injury for us at least, the terrible drought which plagued Georgia all through 2008 has rather abruptly come to an end. We have experienced torrential downpours throughout the winter and into spring. Lake Lanier is almost back to normal levels.

We did 100% financing, so our loss was two years of mortgage payments. The first mortgage lender was made completely whole and was quite happy. It was the second lender who took a partial hit. Why would that second lender agree to a sale that would assure him a partial loss? Because our attorney reminded them that if we instead let it go into foreclosure that they, the second lender, would take a total loss. Georgia allows deficiency judgments, which is just what it sounds like. As part of the deal, our attorney had the second lender agree to release us from any additional liability.

So do my wife and I qualify as among the "greedy speculators" that helped create this mess? After all, it was a second home with 100% financing. Back in late 2006, as we contemplated this purchase, our income for 2006 was down; but our average income for the past three years easily qualified us. Standing behind our income was a strong stock portfolio. I was confident that we had acquired this property at such an attractive price that if I needed to sell in the future, for whatever reason, that would not be a problem.

As you contemplate each month the "official" unemployment figures, you might keep in mind that for each person counted as unemployed, there are surely at least two or more others who now find themselves as "underemployed". Those underemployed are weighing down the economy as surely as the unemployed. Unemployment numbers, official and otherwise, will continue to grind higher in the months ahead. Residential real estate prices, in my opinion, will continue to grind lower. All the while, the nice folks in Washington, determined to "do something", will continue to create money out of thin air. The Great Recession grinds on with an end still unseen somewhere in the distance.