What is Really Happening in the Real Estate Market?
Lenders for months have been holding back a high volume of homes in the foreclosure pipeline that could further depress home values if they are released at once into the market, industry experts say. The artificially created shortage of foreclosed homes for sale comes when there is a strong resurgence of home buying, with consumers finding, often to their surprise, that they must make multiple offers to compete for a diminished supply of bargain homes.
Meanwhile, financial institutions have been encouraged by federal and state lawmakers to slow the foreclosure process to provide more time to work with borrowers on mortgage modifications in an effort to reduce foreclosures.
So where does this game playing lead us?
Scott Anderson, vice president and senior economist with Wells Fargo, said by withholding a portion of foreclosed properties from the market, lenders may deliberately be preventing home prices from falling as fast as they otherwise would.
So don't be fooled by a low supply of homes and a perceived surge in home buying...
A tally by one company that closely monitors foreclosures showed only about a third of repossessed houses are being actively marketed. If this "phantom supply" of bank-owned houses is put up for sale at once, Anderson said, it would probably prompt another steep plunge in property values.
The median price of an Inland house has dropped 43 percent in San Bernardino County and 39 percent in Riverside County in the past year, but the rate has slowed in recent months.
Statistics confirm that banks are keeping foreclosed houses off the market much longer than usual, said Rick Sharga, senior vice president of RealtyTrac, a company that monitors foreclosure trends nationally. Sharga said RealtyTrac studied the 234,716 bank-owned California homes in its database as of the end of November and discovered that only 34 percent were advertised through the state's dozens of multiple listing services, which is how bank-owned properties are normally marketed. "We were frankly stunned by that," Sharga said. Usually repossessed houses are processed, fixed up and listed for sale within 30 days, he said.
While the gradual release of foreclosed properties helps to prop up prices, it also could prolong the real estate recession.
Foreclosure Hiatus
Also, the foreclosure process has been interrupted repeatedly by federal and state moratoriums designed to encourage lenders to modify loans to help financially stressed homeowners keep their homes. Two large government-controlled lenders, Fannie Mae and Freddie Mac, in November imposed holiday suspensions of foreclosure-related evictions that were repeatedly extended until March 31.
In California, legislation took effect in September that requires lenders to give borrowers 30 days notice before taking the first step toward foreclosure. And starting this summer, loan servicers in the state must delay for 90 days the foreclosure of owner-occupied homes or have a comprehensive loan modification program. As the moratoriums expire, the number of foreclosures is expected to spike. So GET READY...this is definitely the time to buy deeply discounted properties and interest rates are fantastic too!
Meanwhile a surge of first-time home buyers and investors, attracted by low prices and mortgage rates and government tax incentives, are competing for a diminishing number of homes for sale. Buyers are snapping up foreclosed houses, many of which receive multiple offers, faster than they can be replaced by new foreclosures.
"At the rate they are dishing out these repos (repossessed houses) it will be years before they all sell," said Kershaw of Prudential Realty, who claims that the banks are missing out on a great opportunity to clear out their foreclosures. "It is spring and we are in the big buying season. This is probably not the time to choke the market with no inventory. It is like not having iPods at Christmas time," said Kershaw. RISMEDIA, April 22, 2009.
Don't Miss Out Like the Banks Are
If you are considering buying property or your clients are, not snooze, it may take longer than you think and you will risk missing a GREAT opportunity by not be prepared.
Have a super successful day!
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