Sunday, June 18, 2006

'Plenty To Buy, Nowhere To Sell It'

The Associated Press has this on the foreclosure business. "They gather outside the courthouse every day for the latest real estate auction. Some are professional investors; others come to ply skills gleaned at get-rich-quick seminars. All of them are trying to scoop up homes that belonged to others who died, divorced, were thrust into bankruptcy or fell too far behind on their mortgage payments and failed to sell."

"But these days, those investors are having a harder time finding good deals, as the once red-hot housing market cools amid rising mortgage interest rates. Many homes that do end up in court are saddled with more than one mortgage and have little or no equity, so the investors take a pass."

"'In the last six months or so, it has been like this,' said James Lee, who has mined trustee auctions for investment property for 15 years. When home price increases were stronger, investors could buy a property and sell it a few months later for a hefty profit. 'Now you're getting into the market where there's plenty to buy, but there's nowhere to sell it,' said Peter Winn."

"As home prices soared in recent years, many buyers had to take out more than one mortgage with low-interest, adjustable rates to close their deals. Those rates are now climbing, forcing many homeowners to drain their equity to cover larger payments then try to sell their property to stave off foreclosure."

"As the market slows, finding buyers in time to avoid foreclosure can become more difficult, said Brad Geisen. That could aid well-funded investors who buy directly from homeowners and may no longer have to compete with buyers who took advantage of cheap borrowing in recent years to drive up prices. 'There's definitely a turn,' Gelsen said."

"Other factors suggest problems ahead for the housing sector. Historically, borrowers who run into trouble paying their mortgage tend to do so within the first three to five years of the loan period. Currently, more than half of the nation's $9.2 trillion in outstanding residential mortgage and home equity loans are less than three years old, said Doug Duncan, chief economist for the Mortgage Bankers Association."

"Another potential trouble spot: About 24 percent of all home loans are adjustable, which can be risky if borrowers end up paying far more than they bargained for as the Federal Reserve hikes interest rates. 'Adjustable rate mortgages always have a slightly higher delinquency rate than fixed-rate mortgages,' Duncan said."

"An increase in the number of homeowners in trouble could mean big business for companies like Dallas-based HomeVestors of America, which proclaims, 'We Buy Ugly Houses.' Less than 5 percent of deals now made by HomeVestors franchisees involve foreclosed homes. But CEO John Hayes expects that to increase."

"'I am certain that as we've seen in the last few months more incidences of pre-foreclosure activities, we're going to see an increase a year from now,' Hayes said."


At 5:42 AM, Blogger Chip said...

Yahoo has a RE search engine in which you can specify foreclosures - the great majority being REOs. I tried it and it gives you a teaser for each property, but throws you to RealtyTrac if you want a lot of detail. However, at least it tells you # of BR/BA and total sq. feet.

Using very rough estimates for square footage pricing versus cost to build new, in the areas I follow, I confirmed that we are not yet at the good-deal stage -- the banks are putting the "likely bid" (count on that being, or being very near to, the reserve price in 2006, IMO) at the loan amount, which is logical folly this early in the crash. And I bet not many of these places sell -- because they represent no-equity or super-low equity properties and few buyers are going to be stupid enough to pay those prices for REOs.

I'm waiting for the banks to wake up and take their losses. Could be a while -- suppose it depends on the date of their fiscal year-end.

At 9:41 AM, Blogger Loren said...

I am also not seeing very many good deals. A lot of the listings are "as -is" and the listing agents seem unwilling to do even a basic amount of work getting the properties sold - no interior photos on the web and so far the ones I've contacted won't even answer emails. All this and they're trying to price the houses along side with the non distressed comps.

If I'm going to buy a foreclosed house with junk in the front yard and possible interior damage I want to get a bit of a discount, but so far what I've seen is people trying to get full price for damaged goods.

At 10:40 AM, Blogger synthetik said...

if you are expecting a fairly large drop, as I am, wouldn't it be prudent to wait until we are closer to the bottom?

From what I can tell, we are at the peak, looking over the edge at the jagged rocks. Holding on for dear life, but we know that falling is inevitable.

From my experience it is pretty easy to know when you are in a depressed market, and quite harder to understand when a market is peaking.

So why not wait until after the panic has set in, denial is gone, all the news is negative, and everything thinks RE is a bad investment.

Isn't that the time to make the best deals? The market turns back into a time to buy rental units again.

We are a long way off from that, so don't you think restraint and patience will be key?

What do you think?


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