Home : Blogs : Kevin Wood, Tucson, AZ Realtor : Kevin's Blog

Tucson Real Estate: August 2009, The New Game the Banks are Playing with Short Sales and Foreclosures

Tucson Real Estate: August 2009, Strategic Games Banks are Playing with Short Sales and Foreclosures

The best part of our current market is the learning curve. It's on a vertical plane and new wrinkles emerge each day. And for those of us who have endured the last few years of challenges, 2009 has brought a wave of first time buyers and investors.

What we didn't see coming was the reality that the banks would control nearly 70% of the inventory for sale. As of late that has posed a strategical opportunity and here's why: Banks are continuing to receive back more foreclosed homes that they need to sell off. They possess literally thousands of homes that would sell in the $125,000-$175,000 range.

Well guess what, that just happens to be the most active segment of the market by far?

I recently worked with a family that needed an 1800 square foot home with 4 bedrooms for under $145,000. Who in the heck wouldn't want this home. So whenever these types of homes became available there would be 5 buyers ready to make an offer. And, we lost out on at least a half dozen homes because so many buyers want this same deal.

In addition, when there are 5 buyers making an offer on the same home the final selling price ends being higher than the original asking price, thereby minimizing the banks losses. So the question is why would the banks be in any hurry to put all the best inventory they have on the market at the same time?

Answer: They wouldn't. Their sandbagging big time by waiting for the best inventory to sell before bringing more of the good stuff to market.

Is there anything that says they can't? No, in fact in some ways its good because it creates urgency and causes buyers to act. You see before the market can change direction when it comes to value, it must sell off nearly all the bank owned inventory. Because when the number of homes for sale is less than the number of buyers in the market, you have a beautiful thing which is greater demand for homes then homes available for sale. AKA Better demand than Supply. When that happens your homes value goes in one direction. UP!

We do have about a year and a half to go yet before the banks get anywhere near selling off the majority of this inventory. Months before loan modifications became available, 2009 was expected to pass 2008 as the year with the largest number of foreclosures. And so far it appears that will happen. My prediction is the tax credit will get extended until late 2010 to keep the momentum going and give the necessary time to the countless buyers waiting to close on short sales that take at least several months to close on.

_____________________________________________________________________________________________________

I'm Kevin Wood of Realty Executives, and I'm the author of this post. You can reach me through email at kwood@gotucson.com , 520.260.3123, or visit my website at HomesInfoTucson.com. I have helped people just like you move in and out of Tucson for over 4 years. In a previous career, I represented Honda Automobile Corporation for 10 years. During that time, I placed among the top 5% of all sales consultants nationwide for overall client satisfaction and volume. My office is conveniently located on Kolb Road 1/4 mile south of Tanque Verde.

Posted by Kevin Wood, Tucson, AZ Realtor on 09/12/2009 02:06 AM

Comments (36)

Banks and Foreclosures in the Regional (Localism) Channel

tucson real estate, short sales, foreclosure

This post has been included in Arizona Information Pima County, AZ Information Tucson, AZ Information
Post is included in group: Word of mouth Networking
Post is included in group: The Art Of Marketing You
Post is included in group: Realtors®
Post is included in group: Posts to Localism
Post is included in group: Military Relocations

36 Comments on Tucson Real Estate: August 2009, The New Game the Banks are Playing with Short Sales and Foreclosures

SEP

I hope the tax credit is extended the time is getting short to qualify. I like your take on the bank's stategies.

I don't know the Tucson real estate market but I know the MD and VA market and our foreclosures are about gone. We're down to less than 1/10 percent foreclosure listings.

The Fat Lady has sung.

WAIT!! Perhaps they're waiting until the spring market to list another wave.

Perhaps it's all of those homes waiting for failed loan mods to go to the Courthouse steps.

That's what is happening in our market but eventually the bandaid needs to be ripped. We are small cities out here and each one has about 700-1000 REOs that are not currently listed. Our false price increase is caused by the banks dripping out their inventory. It's an interesting market to be sure and we're all waiting for the other shoe to drop! I can't wait for it to happen!!!

Kevin,

You could very well be right. Why would you want to sell of all of your assets at one time for less money when you can drag it out, make a little more and make the books look a little better? It does make me wonder-if they are smart enough to do this, why wouldn't they put a few dollars into repairs that would make some of these homes worthy of a mortgage instead of limiting them to investors with cash?

Kevin - you are right on with your take on what the banks are doing. But it is a double-edged sword. Every property they keep on their books means they have to set more money aside in reserves. REO can really screw up their books so they won't take it too far. If they released all of their inventory real estate values would drop so much it would put everything into a tail spin. And the peak of foreclosures hasn't even hit yet.

We're seeing the same thing in Sacramento. Very little inventory and tons of buyers. If the tax credit isn't extended after Nov. 30th, this could cause the market to come to a screeching stop. However, if the banks dump inventory, that would depress prices. Most of the banks I hear about are transferring title into a holding company and renting out the homes they seize.

Kevin -

I have seen this too. We are starting to see the RUSH to buy anything that is not a short sale to beat the deadline for first time homebuyers. In fact, a lot of short sale listings are not getting any showings.

But - on the other hand, while inventory is continuing to be lowered the average and median price fell last month in Tucson by about 3%.

This is great insight, we're seeing the same here in Colorado. I'm definitely hoping they extend the tax credit, it has flipped our "$220K and below" market. There are 5 buyers for every home on the market in that price bracket. It's also good to hear how Tucson is doing, I was born there and have family there. Thanks for the update.

Be well,

Brendan Winans

Morning Kevin, Are you referring to the " shadow inventory " supposedly being held back by the banks ? Some argue that the lenders can't afford to release all of the distressed properties at once. Others point out the negative effects of holding " non-performing assets ".

Good post Kevin. We are running into the same thing here in LV. One possibitly could be the banks change in their accounting methods that actually helps their books to hold on to this inventory. I produced a short video about this with my busiiness partner and posted it yesterday. Check it out here if interested.
http://www.youtube.com/watch?v=G0zVsMIYmD4&feature=channel_page

The same thing here in Nevada! I have a list of buyers all waiting for the average home, mid 100's, 3 or 4 bdrm. The bank will release on or two and then the offers come pouring in. The REO agent's (another blog) will keep the property active for a long period of time while they collect the offers and then accept the best offer. Of course, the house that was listed at $150,000 now sells for $180,000! Crazy times right now!!

I haven't seen any banks in our area holding back on inventory, but then we never did see a majority of houses being foreclosures.

Funny how the banks just sit on some homes, leaving them in the name of the (often long-gone) old owners - unilaterally, mysteriously postponing the foreclosure sale - without any pending short sale or other apparent reason to hold off.

Funny. And a little scary.

Kevin,

A massive wave of BPO requests came my way within the last month after a relatively light period. No way are we even close to the end of foreclosures in my area. And I know of several home vacant over a year where the banks haven't foreclosed - yet. They are biding their time.

Bet Lenn will find her area isn't finished either!

Good Post !

Sandbagging would say there is a strategy to the whole thing (Slick Willy at BOA?). I think they are as dumb as rocks and really don't know what they are doing. This whole real estate thing is a brand new game for them, they are used to shuffling alot of paper around. Well, here you go Mr. Bank here's that brick & mortar you've got to take back. Totally inept.

I don't doubt it but I just don't see the banks having the wherewith all or people to be able to pull this off, they seem swamped over here.

Interesting insight into what may potentially be in our future.

SEP

I don't think the banks hold onto inventory to manipulate the market. They are holding them back to keep the politicians happy. They are making a good faith effort to do loan mods.

I don't think there is much rhyme or reason to the activities of many of these banks. It depends on the individuals making the decisions for the banks, compounded by their workloads. As we keep seeing in these posts, the same bank makes different decisions for similar situations for no apparent reason. Maybe it's the area, the timing, the backlog, the inventory, the or perceived market situation. Trying to figure out why some banks do what they do will just cause you to start talking to yourself.

When I was working for a small computer company back in the late 70's called IBM, they instilled the FUD factor into their customers: Fear, Uncertainty and Doubt whenever there was a competitor trying to sell systems to the same customer. They said "Nobody ever got fired for buying IBM! Do you want to be the one who selected another computer company and if it didn't work out, are you willing to take resposibility for your decision?" Obviously the answer was always no.

Fast forward to 2009. The employees at the banks go to work at 9am, go home at 5pm and they really couldn't care less what happens in between. They don't want to take the resposibility to make a smart decision. They like their job and don't want to risk loosing it.

They are hired as bank employees, not real estate knowledgable employees. They have no clue as to what the hell they are doing. They don't want to make a decision that affects their companies bottom line. They don't want to be responsible for approving a $200k loss on a short sale. They don't want to withhold inventory from the market. They don't want a $500k asset to sit there collecting dust. They would rather sell it and place the cash as a new loan where they can collect 5% interest.

I talked to a few asset managers, and they were told to get rid of inventory as fast as possible. What sense does it make to accumulate REO's and let them loose on the market next year. They would be in the same position as now, flooding the market with unsold homes.

If any of these bank employees knew what they were doing, they wouldn't be in this bailout mess and they certainly wouldn't work for a bank at almost minimum wages. They would find a real job with a company that values knowledge and forward thinking, for a much higher salary.

What about the next wave of foreclosures everyone is talking about???

Same thing is happening here in Southern California, particularly my in my area. It seems to be the banks have controlled the market completely! They are sitting on thousands of homes and trickling them onto the market creating a buyer frenzy. They have effectively controlled the down fall (which is good) but they could have released so many more homes and still sold for the price they are getting now. We have anywhere from 10 - 61 offers per home if it is in descent shape. To make it more frustrating is that listing agents are listing them below market value which makes our job harder because the buyers actually think they can get it for that. Takes more time to educate my buyers that listing price means nothing, comps are what they have to consider to even have a chance at it. It is simply CRAZY.

I agree on your opinion in regards to the buyers credit and hope that will be true but I tell my buyer exactly that. I think they will but you cannot count on it until we know it to be true. I expect the announcement will come Nov 20th after the possibilities of buying with that credit are exhausted.

I agree it makes some sense for the bank to do what they are doing and I would have no moral or legal complaint; except that I am a tax payer. As tax payers we bailed them out. They are now profiting on this at both ends. Not only that a very small portion of the agents control the listing market on the REO side with a suprising number of double ended deals that look suspicious to me. I will post on this latter.

Julie,

I don't see how they can avoid extend the credit. The NAR knows what's up and are putting heavy pressure to exten.

Len,

Interesting how small a percentage are bank owned in your area.

Stacy,

I bet the impact may be greater in the smaller communities.

Patrick,

They should fix up the few that are near the borderline of passing an FHA appraisal. So many buyers who like these homes can't make an offer because of it. It seems the banks are more concerned about time than money.

Jane,

I couldn't agree more! Thanks for your comments.

Elizabeth,

We haven't seen the holding company trend here in the desert. That's a new one.

Chris,

I've had similiar experiences. thanks for your comments.

Brendan,

I wonder if this trend is in markets that have median price points in the 150-250 range. It seems so!

Bill,

For sure.

Kendall,

Thanks for the video link.

Terrie,

I'm with you. It's a blast

Erica,

Your market is a rare stone in these times.

Jim,

there are days I think their left arm doesn't know what the right is doing

Irene,

There's definitely more to come. I think the loan mods are helping slightly and putting mud in the water too.

Thanks!

Lyn,

LOL

David,

How true, management and staffing has really never been adjusted to accomodate current conditions.

Heather,

This phase will be on the outs by late next year or early 2011. Enjoy it while we can. These times are a landmark in our careers. Just think you'll be able to look back and say you survived or thrived in the worst real estate market crash in history.

James,

How would this method keep the politicians happy? I'm intrigued, please elaborate

Thomas,

I've always talked to myself. What I'd like is the negotiators at the bank to talk to me. Thanks for sharing

Peter,

Some of it depends on the individual market. I agree there is little experience at Mother bank, I wish they would have a greater sense of urgency and that's something they can control. Thanks too for the FUD acronym from your IBM days.

Shannon,

They are coming.

Diane,

Thanks for your local angle. My heart is aching this morning after my Buckeye's lost to your SC boys last night in Columbus. Great game though.

Gene,

Your thoughts are often the forgotten aspect of government intervention into areas they have little knowledge of. I'm afraid my grandchildren will take home about 25% of their gross income in 20-30 years.

Kevin, Good thoughts. The banks will do what the banks do. They are definitely in control and sometimes what they do makes sense, and sometimes it doesn't. The less money they lose, the better, otherwise it will cost us taxpayers more money.

The tax credit is no different than anyother social welfare system...people get addicted and dependent on it. When the tax credit ends they will be screaming they deserve it.....entitlement mentality......thanks big govt.

To think the banks are conspiring to keep prices inflated by not releasing foreclosed inventory is simply giving them to much credit if you ask me. It's hard to believe they could pull something like that off when they can't even manage to come up with a workable solution for short sales!

Excellent Post. Now let's remember that over 50% of all REO's are controlled by Fannie Mae and Freddie Mac not the banks. So if there is a conspiracy it may well be yet another government tactic to throw us all off the scent of what is really going on in the economy. Runaway unemployment and now the other shoe just dropped the "A" paper fixed interest loans are now the number one default product in the newest round of foreclosure filings. Another theory is that the banks and the government both do not have enough employees to cover the product if they did release it all. Yes it is a learning curve biz.

SEP

Hmmmmmmmm I hope the First Time Home Buyer Tax Credit is not extended. I do hope there is a tax credit for ALL initiated before the end of spring 2010. I would also like to see it at $15k. This would allow those interested in moving up to do so which would put them into a position to sell thereby catapulting the market. Maybe, eventually, the market will begin to stabilize instead of hanging on to the thread of hope that people who've never owned before will save us all.

I agree Kevin. The Banks are holding back and it IS raising the prices and demand somewhat.

Hmmm... not sure how manipulating the market is good.... good for the banks maybe... certainly not good for the consumer.

Kevin,

My prediction is the tax credit will get extended until late 2010 to keep the momentum going...

From your mouth to God's ears.

Mike in Tucson

SEP

Jirius,

Good Point, thanks for sharing.

Brad,

Let's hope this is just an exception all things considered.

Jenny,

It's funny though how good their timing is. I can't call it luck just yet. As for the short sales I have a comment but it would require another post. And

Linda,

I think the $15,000 tax credit would be too much to soon. Thanks for the sharing.

Mark,

No doubt!

Uncle Mike,

I agree, besides the NAR has probably reminded the folks in Washington that about 15% of buyers can't close until next spring because the banks don't have enough staff and management to expedite the short sale process. Thank you for your continued support and mentoring. You're a champion!

Lyn Sims

I couldn't agree more with you!

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?