The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
Foreclosures Revisited…
I know you’re thinking: So what‘s left to say. True enough it is a topic that has had more than a little coverage and not without reason. Foreclosures seem to be one of the few growth industries in today’s market and they are here to stay for some time yet… Do any of us not know not just someone but multiple persons who have experienced the pain of foreclosure?
So what is left to say?
First of all… and I’ve already alluded to it: Foreclosures are here to stay… at least for the foreseeable future. While the most recent prognosticators (read “guessers”) predict little improvement before 2013, real improvement probably lies at a point well beyond that date. For you see the world has changed! The stigma which once surrounded foreclosure seems to have been erased.
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While the primary causes of foreclosure will remain job losses and medical debt, we are now seeing the market affected by Strategic Foreclosures, which will probably continue long after jobs and medical debt issues have improved. So what is a Strategic Foreclosure? There are homeowners who, while they can pay their mortgage, can’t afford to sell their home, as they owe more on their home than it is worth in the current market… Rather than staying in that home, they are making a strategic decision to walk away, as a way (despite the damage to their credit score) to stop the loss and prepare to purchase in a market with much lower values. Currently, there are no effective methods of discouraging this practice. However, I do anticipate that the issue will be addressed at some point in the not too distant future.
My second point in this update is that the number of foreclosures and foreclosures in progress is greater than the number of REO (the term to describe properties following foreclosure… basically it means Bank Owned) properties being actively marketed. The difference between these two numbers is referred to as the foreclosure shadow market or more clearly that part of the foreclosure market that is invisible even though it exists. This is being caused by the fact that the financial institutions simply can’t handle the volume of foreclosures, or have made a strategic decision to either allow the homeowner to remain as a way to protect the property from further decline often associated with vacant properties or lastly to refrain from flooding the market with additional REO properties further driving down home prices and thus the value of these assets.
Third Point: The word seems to have gotten out to the buying public… You get what you pay for! Foreclosures are typically in very poor condition and while marketed at a depressed price will generally require a good sized investment of upfront cash and/or sweat equity to be of comparable condition to a properly priced re-sale property. The best deal isn’t necessarily the property with the lowest price… but the property that offers the best value and that fits the purchaser’s tolerance for pain.
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Fourth Point: Fannie Mae’s new rule announced and effective last week that it would no longer accept loans for properties with unexpired rights of redemption as such properties are deemed as having unacceptable title defects. While it is true that not all loans are Fannie Mae loans, Fannie Mae is seen as the maker of the secondary market in which loans are re-sold. Therefore it is reasonable to assume that other will follow suit. In Alabama, one of two states with a 12month standard right of redemption, the new rule will certainly favor investors who typically operate with private funds. Other investors operating outside of these guidelines may end-up charging a bit higher interest rate for properties with unexpired redemption periods. The jury is still out on this one.
Final Point: As always, I remind you that all Real Estate Markets are local. Check with a qualified Realtor® for detailed information about the situation in your target micro market.
May the market be with you.
Technorati Tags: Foreclosures,Market Conditions,Fannie Mae,REO,Right of Redemption
