Compliancex

Despite all the gloom and doom lingering in the economic news, demand for real estate is rising amid record-low borrowing costs and tight inventories of available real estate.

The uptick in demand is being caused by a number of factors, but Bloomberg News notes that lenders in the US are back to foreclosing on properties that have remained on their inventories. While this might seem counter intuitive to the idea of a housing recovery, the banks need to clear a “backlog” of properties in order to accelerate any housing recovery.

 At the same time banks are seeking alternatives either by working with certain borrowers who qualify for loan modifications under a variety of federal programs as well as other “loss mitigation” programs created by the banks.

In some cases, banks are also selling properties for less than what was owed. These are commonly referred to as “short pay-offs.”

“You have to get to the point where the market can heal itself and foreclosures and price adjustments are the only way that can happen,” said Anthony B. Sanders, economics professor at George Mason University in Fairfax, Virginia.

At the end of the day, the housing market’s moribund rebound has been restrained by the so- called shadow inventory of homes with mortgages at least 90 days delinquent, in foreclosure or already owned by banks, says Bloomberg.

Initial notices of foreclosure spiked 6 percent in the second quarter from a year earlier, the first annual increase since 2009, according to RealtyTrac Inc., a seller of housing market data. Record-low borrowing costs and tight inventories of available real estate are also pressuring the housing markets slow uprising.

At some point real estate investors will begin to buy these distressed properties and as the banks’ inventories are cleared, these delinquent loans will be off of their books. This development will enable the banks to start lending again as more capital will be available to other potential borrowers, especially first time buyers as well as those who hope to refinance their loans to obtain better rates and/or pay off other consumer debt.

In short, any broader economic recovery depends on a recovery in the housing market. And recovery is said to be coming any day, any day now….

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Kyle Colona is a New York-based freelance writer and a Feature Writer for CompliancEX and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications. You can find him on linkedin.