I now know from personal experience that the two most misleading words in the English language are "Short Sale." Nothing "short" about it; really, the gestation period of sperm whales goes faster.
Here's the gist: In August of this year, I found my ultimate "dream" apartment; a little one-bedroom park-side loft re-listed on the market as a short sale for half its original asking price. I made an offer. 24 hours later, the owner accepted, and my loan was pre-approved. All signs seemed to point to a swift and hassle-free real estate transaction -- that is, until the bank got involved.
In the 9 weeks and 6 days that followed, I read one counter-offer after another, signed more dotted lines than a public notary, and supplied more financial and private information about myself than people waiting to meet the Pope -- only to be told after much hoop-leaping that I was denied: I, with an excellent credit rating, stable job, 20% down payment, and low ratio of personal debt to income.
In the meantime, the owner of the property, well intent on doing the noble thing and avoiding foreclosure via a short sale, couldn't hold out any longer and ended up filing for bankruptcy. Final score: Bank: 0, Buyer: 0, Seller: 0.
Such is the first irony of the today's real estate market: There is nothing "short" about short sales. They are usually the longest, most drawn out, oft-ending-in-failure means of buying a home.
Which leads to the second irony: Mortgage rates stand at historically low levels right now, yet the increasingly strict lending standards of banks makes it harder for even the most credit-worthy person to buy a home. Here, the following news item speaks to the very matter:
With approval, "the lender could get revenue and there wouldn't be as many homes going on the foreclosure market and selling for relatively 'nothing.' This is the sad truth of the environment we are in today. We have the solutions, but we are not allowing people to use those solutions." (Associated Press)
And, while the majority of mainstream experts find the new risk-averse attitude of banks confounding, the ongoing scenario is exactly as EWI President Bob Prechter anticipated. Here, the following insight from Bob's 2002 acclaimed book Conquer the Crash sets the scene:
“When the social mood trend changes from optimism to pessimism, creditors, debtors, producers, and consumers change their primary orientation from expansion to conservatism. When lending officers become afraid, they call in their loans and slow or stop their lending no matter how good their clients’ credit may be in actuality. Instead of seeing opportunity, they see danger.”
As it were, mortgage lenders aren't the only ones cutting off their cash cows to spite their face. Loan availability all around has fallen to two-decade lows, while home and business owners are walking away from their leases at an increasing rate.
The sea change in mass psychology from fearless to fearful and conservative is upon us. There is no going back until this new trend exhausts itself -- just like the uber-optimistic trend did three years ago. (Prechter's Conquer the Crash explains why the Fed does not have the power to rush these trends.) The safest course is staying ahead of the changes to come.