The Economic Effect of the Texas AG Issuing Moratorium on Foreclosures

October 6, 2010

Yesterday, the Texas Attorney General issued a moratorium on ALL foreclosures in the State of Texas, requiring banks to review their foreclosure processes.  It is unclear yet as to the legal ramifications of this decision, and how long these foreclosures will be tied-up within this re-examination process.  It includes all foreclosures, within all positions in the foreclosure pipeline.

While the legal issues remain a gray area, one can deduce its economic impact.  The moratorium should create an immediate reduction in supply - up to 24% of the supply market being put on an indefinite hold in some areas.  In some areas, 24% of the home sales market is comprised of foreclosures.  With this sort of reduction in supply, it is sure to create a tighter market, and raise competition - driving up prices.  I don't see a large increase in pricing because many consumers are still having trouble getting loans.  I do see it as a move toward equilibrium, temporarily, until the issue is resolved.  Those with "un-troubled" assets on the market should see more showings and thus more offers - although some buyers who are simply "looking for a deal" will put their home search on hold for now.