Discounted Competition About to Enter the Market? September 22nd, 2011

For the past several years, I’ve been hearing about a backlog of homes that were waiting to be released to the market. Most of these homes are banked-owned, and are currently sitting in the banks’ pipelines. The graphic above from The KCM Blog shows you what that situation might look like.

I’ve never been a fan of government interference in the marketplace. Whether it was the $8,000 tax credit or the currently-artificially-low interest rates, the housing market can’t truly recover until Uncle Sam stops trying to ‘fix’ it. In this instance, however, government interference is helping prevent a total market collapse.

Imagine what would happen if the banks were allowed to suddenly flood the market with all those foreclosed homes. Those properties are typically sold at a discount, which works to drive down property values in the surrounding neighborhood. If you were trying to sell your home, and there were two or three similar houses in the area selling for 10-30% less, you would likely have to discount your home’s price in order to get it sold.

I’ve always maintained that we’re extremely blessed here in Lincoln. Our market has slowed, and we haven’t been immune to the recent changes in the housing market, although we haven’t experienced the dramatic drops like some other cities. However, the number of default notices filed in Lancaster County in the past year has risen substantially. I don’t know if there’s a 47-month backlog of homes in our area, but the pipeline is definitely full.

Will the floodgates open anytime soon? I wish I knew! It would surprise me if those properties were all suddenly released to market, simply because current real estate values would plummet. The economy is still fragile, and a sudden influx of foreclosures into the market would be a big push in the wrong direction. Those properties are still there, though, and they’ll need to be sold at some point. The banks won’t hang on to them indefinitely.

If you’re a buyer looking for a good buy in the year ahead, know that there will be opportunities for you. If you’re considering selling, be ready to prepare and price your house to compete, not only with the traditional listings in your area, but also perhaps with some of these bank-owned properties.

Posted by Jon Rademacher

Foreclosure freeze a big deal October 14th, 2010

This week Bank of America announced that it’s stopping all foreclosure sales for the next 30 days. During that time they’ll review the foreclosure process to ensure that their procedures are correct.

Three other banks (PNC Financial, GMAC Mortgage and JP Morgan Chase) have also announced a 30-day moratorium.

Why the freeze? Evidence is mounting that, over the course of the last several years, some homeowners may have been improperly kicked out of their homes. There are a lot of questions about the banks’ procedures, and they’re worried about lawsuits from former owners who feel they may still have a claim to their home – even if it’s already been sold to someone else!

As you probably know, the number of foreclosure properties has risen dramatically in the last couple of years, and banks have struggled to keep up. Turns out that foreclosure papers may have been simply ‘rubber-stamped,’ and not actually reviewed by a real person. If that’s the case, you know that mistakes were bound to happen.

My gut tells me this could be a huge story for a couple of reasons. If it’s discovered that owners lost their homes because the bank acted improperly, you can imagine the lawsuits that will follow. It’s also important to note that, while the bank may not be processing any more foreclosures for the next 30 days, there are still owners struggling to make payments. Some of those owners are abandoning their homes, so the number of houses that will eventually be foreclosures will continue to rise. Picture a pipeline, with more and more properties being stuffed into it. That’s going to create a huge backlog, and at some point that backlog will need to be released.

When that release comes, cities will see a fresh wave of foreclosure houses on the market. Generally speaking, that’s not good for current homeowners, because the sale of the repossessed houses tends to drag down the property values surrounding it.

The banks’ decisions also pose a question to transactions currently in progress – what happens if the bank can’t guarantee clear title? What if the bank won’t sell the property until they determine that their processes were correct? What if their processes weren’t correct? Buyers hoping to close on their new house in the next 30 days might be forced to wait … and they could end up waiting a long time. (Banks tend to work very slowly – I’ve worked with banks before, so I know from experience!)

This story is just beginning to unfold, but I think it’s going to become a big deal.

Posted by Jon Rademacher