Short Sale vs. Foreclosure? --

Bankers Realty Services, Inc – solving the foreclosure crisis, one homeowner at a time.

Short Sale vs. Foreclosure?

You make the call!

I get the question from people all
the time: short sale or foreclosure, which is the better option? My knee-jerk
reaction is always “Are you kidding? Short sale, of course!” This has been
mostly because I was always under the impression that a short sale, although
still a ding on your credit, was gentler on the score than a foreclosure.

But according to a recent blog post
by FICO Banking Analytics, there is no real difference in the affect a short
sale or a foreclosure has on your credit score. Both the impact in points and
the time to fully recover is about the same for both events.

This put me in a precarious
situation. All this time I had lauded the short sale as vastly superior to
foreclosure, largely because of its less adverse affects on credit. So I was
forced to do further research into which was the better option. In doing so I
learned about benefits of a short sale I wasn’t even aware of, and found that
the FICO blog was way off.

Each borrower’s credit situation is
different, and the way that a creditor reports a short sale to bureaus is
different. The reality is that hundreds of thousands of distressed homeowners
who have chosen a short sale have experienced a lesser impact on their credit
than those who have chosen foreclosure.

In a short sale, a distressed
homeowner may be able to obtain another mortgage sooner than someone who has a
foreclosure on his or her record. Also, more and more employers pull credit
before hiring a potential employee, and a foreclosure can keep you from getting
a job.  Some employers pull credit
reports on existing employees, and a foreclosure may not bode well in certain
industries.

These benefits stacked against the
negatives of foreclosure, including the embarrassment of public announcement
and literally being kicked out of your home, make, in my opinion, short sale
the reigning champion.

The most convincing reason is that I recently completed a short sale in which the seller never missed a mortgage payment. So actually no negative credit was ever reported and the seller was able to qualify for a new mortgage and purchase a house immediately after his short sale!

 

Rental Market Set to Explode – 25% Growth --

Tuesday, June 7th, 2011, 8:00 pm

Numerous recent reports claim renting is on the rise, but John
Burns Real Estate Consulting
believes demand in top markets is about to
“explode,” with some cities seeing a 25% growth over the next three years.

 

According to John Burns, there are about 3.4 million units of pent-up demand
for rental housing bolstered by young adults who either live at home or are
rooming with a friend to save money.

 

“We expect this demand to materialize over the next few years, with most of
the demand entering the apartment market because of the inability to qualify for
a home and uncertainty over their employment situation,” vice president Leslie
Deutch said in commentary Tuesday.

 

Still, 20-somethings won’t be the only driver of rental demand. Unemployment is still high, the consulting firm said, which
will motivate even older adults to consider renting as a “safer” option. Deutch
anticipates only a 2% growth in jobs by 2012.

 

Government policy will indirectly send housing traffic to the rental market,
Deutch said. For 19 years, the government aggressively promoted homeownership,
an effort which “is about to reverse itself,” according to Deutch. A previous
report from the firm weighed the impact of government policy on the housing
market (see graph below).

 

 

“We see 2011 as a very uncertain year for housing, primarily because the
powers that be in Washington DC continue to influence the dynamics of the
industry,” Lisa Marquis Jackson, author of the previous report and senior vice
president of John Burns, said.

 

Sequentially, rental rates will rise, occupancy rates will increase, and new
construction will start, Deutch said. She expects some coastal cities to witness
rental growth of 25% or more. Other major metropolitan areas could see up to
4.5% rental growth by 2015. But not for very long.

 

According to consensus, Deutch said common sense indicators point to
homeownership. For one, she said, rental rates must hit a cap.

 

“Several of our apartment clients feel that they are already near the limit
of what their tenants can afford,” Deutch said. “Renters are a clever, creative
bunch who won’t take huge rent increases easily.”

 

Other reasons Deutch said the apartment sector will eventually contract is
because of the long-term affordability of owning a home versus renting, and
because it’s “not smart to rent forever.”

 

“As rents start to grow, more renters will consider buying,” Deutch said.
“Most people realize that paying rent all your life is probably not a great
retirement decision unless you are a fantastic saver.”

 

Write to Christine Ricciardi.