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The Negative synergy of foreclosed properties adding to Supply

By
Real Estate Agent with Randall Realtors

The increasing numbers of foreclosed properties coming on the market is having an effect that extends beyond simply competing with 'normal' resale properties. We can all see the direct effect as the prices these properties are getting are undercutting the market value of non-distressed properties.

The most insidious and damaging effect is on the marginal properties on the market; the 'short sale' the last ditch effort to get out from under an In-bearable mortgage. Most short sellers will be over optimistic when pricing, do not get sold, chase price and still do not sell. Add to this the increasing number of foreclosed properties and you get short sales becoming foreclosures. By some accounts up to 45% of the short sale properties become foreclosed properties.

Which adds to the supply...

(Blackholes draw everything near into itself and by doing so grows stronger allowing it to draw matter that is farther and farther away, and grows.)

Comments (3)

Karen Hurst
RICOASTALLIVING.COM - Warwick, RI
Rhode Island Waterfront!

Hello Clark, and welcome to Active Rain! I love it when Rhode Islanders join up. 

To be honest, I did not think that the Westerly area was as prone to foreclosures as the Providence area. The black hole theory is pretty scary. I do think that RI has undergone some traumatic changes these past two years and we are leading the pack, so to speak, in foreclosures, unemployment, poor economy..just as we led the pack with the big rise of prices!  It has to end somewhere, but the fallout from all this will never be forgotten!

Jan 14, 2009 12:50 PM
Clark Farley
Randall Realtors - Westerly, RI

Karen

Agree that Westerly is a different environment (foreclosure-wise) but I believe it is a matter of scale not substance. We have a smaller number of distressed properties, but as they become more common I think they become a factor in the minds of the Buyers, to the detriment of the market place in general.

Another way to say it would be: one foreclosure in a neighborhood is a curiosity, but two tend to make a Buyer think, 'well I missed (buying) that one, but I'll just wait and catch the next one'; meanwhile the owner/seller down the street simply cannot compete on price.

Jan 14, 2009 10:48 PM
Karen Hurst
RICOASTALLIVING.COM - Warwick, RI
Rhode Island Waterfront!

I agree, then it becomes an reo driven market. Definitely not a good time to be a seller in this market. We don't hear too much about the prices of homes going down for people who are not selling right now, but it's a major problem. Sellers are also "sitting on the fence" as are buyers.

Nice to meet you.

Jan 15, 2009 01:19 AM