3 out of 5 homeowners in Reno-Sparks Owe More than their homes' worth

This was a headline in our local paper last Sunday. It went on to report:

"Falling home prices continued to negatively affect the local residential real estate market, with 51,879 properties with an active mortgage currently upside down in Reno-Sparks during the first quarter of this year, according to data provider CoreLogic. The number means that 54.4 percent of residential properties with a mortgage had borrowers who owed more on their homes than the properties were worth."

It helps to validate the report that a third party independent firm Corelogic spearheaded the research. After more than 5 years, I think it's safe to say, there's still no bottom in sight. It's very frustrating that it doesn't have to be this way, if only the banks had a better system in funneling distressed homes through short sales and foreclosures -- if all else fails. That's the key: IF. ALL. ELSE. FAILS. Foreclosures should be the last resort.

After 5 years of falling real estate market, the loan originators (banks, investment firms) continue to beat already low expectations on how they handle distressed properties. I mention this in previous posts that demand for Reno-Sparks real estate is not depressed! Lack of demand is not the reason why our market is down.

I noticed this healthy demand trend as early as 2007 which was the basis for my wrong prognosis of a coming Reno-Sparks real estate bottom.  I thought the bottom was close because demand outpaced supply by a good margin. But it did not happen like I thought because this real estate downturn defies previously dependable economic laws like supply and demand, I underestimated the effect of the domino effect of distressed properties.  This market became so bloated and unsustainable that it created a real estate monster that continues to wreak havoc: the domino effect of foreclosures in overall home values.

Nobody can stop the oncoming tide of foreclosures especially in this type of economy. But I believe you can limit its ill effects: Banks giving homeowners a price break, be it in monthly payment or even principal; banks prioritizing short sales over foreclosures (people are making offers left and right but banks routinely reject offers below their "Bank Priced Opinion"), and working with local government to find a way to help homeowners stay at their house. Because one thing I've discovered, a lot of these homeowners want to stay at their house even though values are "upside-down". That's their house and given the choice, they would rather stay. Banks and local legislators should put that in consideration and work from there. It's not going to be a win-win situation, both already lost, but the key now is cutting losses short.

Our market's fate hinges on that.