Friday, September 07, 2007

In Come the REO "Shockwaves"

From the Sacramento Business Journal:

Housing price drop looms
Bank-owned homes flood market


There is a certainty with bank-owned real estate: There's going to be a lot more of it on the market, and that's bad news for anybody else trying to sell a home...So far, bank-owned home prices are holding stable. But with the ranks of foreclosed homes rising, that will change. For the time being, lenders are holding homes and hoping their foreclosed homes sell for close to list prices. But they soon could come under pressure from regulators and the market to unload the properties, whatever the cost.

Most in the business expect prices to drop because the inventory of bank-owned houses is growing. Almost 8,000 bank-owned homes were for sale in the four-county area at the end of August, according to RealtyTrac Inc. of Irvine, and that number could easily double by the end of the year. If that happens, and lenders are forced to lower their prices to get the homes off their books, shockwaves will reverberate through the whole housing market.

"The investors and the asset managers have not faced reality, and they think they are going to get a lot more for these homes than anyone is willing or able to pay now," said Ron Leis, broker and co-owner of the Coldwell Banker franchise in Carmichael, the Diez & Leis Real Estate Group. "They are going to have to take huge, huge losses. There is some pain that has to be felt."

That pain could be felt by homeowners and investors looking to sell. The four-county region had 15,927 homes for sale as of July 7, the most recent data available, according to Trendgraphix Inc. With half of those homes being bank-owned, it's easy to see how any drop in prices for foreclosed homes would affect the rest of the market.
...
"There's a ratio that shows what is going on: In June, there were 950 homes sold in Sacramento County, and in June there were 630 homes taken back by banks," said Scott Thompson, owner of Mortgage Resolution Services, a short-sale specialist..."The lenders are just now realizing the problem is beyond their ability to fix it," Thompson said.
...
Aggressive mortgage companies using subprime lending fueled the housing boom far past when it should have slowed...The housing boom ended with the collapse of a huge foundation of shaky assumptions. One such assumption, that all houses would appreciate, started an avalanche of problems. If someone got into trouble on a loan during the boom, they could cure the problem by selling the home. When valuations stay flat or decrease, a borrower facing problems is stuck in a home that has a mortgage now valued more than the home. That's what is driving foreclosures.
From the Sacramento Bee:
Sacramento-area home builders have long maintained that many of the region's foreclosures are hitting investors who bet big and lost...The MBA, a lender trade group in Washington, D.C., says 21 percent of prime loans that are in default in California belong to people who bought homes without living in them. And 15 percent of subprime loans -- higher-cost loans for people with blemished credit histories -- now in default belong to the speculators...In early 2004, nearly one in four home buys in Sacramento County were by speculators and so-called "flippers," according to DataQuick Information Systems.
...
Since they started as a whisper last November, home auctions in the Sacramento region have become a roar. The biggest one yet -- 306 houses lost by owners to the bank -- is scheduled at Cal Expo at the end of this month. This time, it will take the weekend to sell them all. It's proof of how extensive the foreclosure problem has become in this part of the state.

11 comments:

FRANK LL0SA Va Broker- BLOG.FranklyRealty.com said...

REO, Foreclosure, Preforeclosures, Auctions, Short Sales. So many terms, so little time.

In Virginia you can set up the MLS to send you alerts with the word "BANK" in the subject line. Can you do that out there?

Patient Renter said...

"In Virginia you can set up the MLS to send you alerts with the word "BANK" in the subject line. Can you do that out there?"

I think the real question is, can your inbox handle it?

Diggin Deeper said...

"The investors and the asset managers have not faced reality, and they think they are going to get a lot more for these homes than anyone is willing or able to pay now," said Ron Leis, broker and co-owner of the Coldwell Banker franchise in Carmichael, the Diez & Leis Real Estate Group. "They are going to have to take huge, huge losses. There is some pain that has to be felt."


I think we've all known that this was going to happen some day. Banks answer to shareholders and it's better to take the hit and move on than to prolong the agony and add more inventory to their pile. The problem is some may have waited too long and the losses could very well overcome smaller institutions.

Likely, these dumps will set pricing precedence for all neighborhoods where they occur... including those that will supposedly diverge from the general market and feel "less pain".

The burning question will be, "Is this a buying opportunity?".

Personally, it might be if we avoid recession and jobs hold up through the first couple of quarters next year. If not, we're hunkering down and waiting for the sun to come out. Imho, when prices bottom they'll probably stay there for quite some time like they did in the 90's

Diggin Deeper said...
This comment has been removed by the author.
SacramentoCrash said...

Too much inventory, tightened and more honest credit markets, scared buyers = further price declines.

Gully_Foyle said...

I live in Cameron Park and it looks llike another price drop is about to hit. The same sq. ft. size homes that sold for $589k two years ago sold for around $499k last year. Similar homes are listed around $449k-ish right now.

Sellers and their b.s. realtors are really trying to hold the line here and in El Dorado Hills.

I don't think now is the time to buy-- not yet. Another two years of large price drops are coming IMO.

Perfect Storm said...

Almost 8,000 bank-owned homes were for sale in the four-county area at the end of August, according to RealtyTrac Inc. of Irvine, and that number could easily double by the end of the year.

It looks like foreclosures is back on the menu boys, dig in!

Housing/Mortgage Doom 2007.

Foreclosure Hell 2008.

Were right on track for a 50% price decline by 2009.

Gwynster said...

In the little area I'm tracking, sellers who bought in 01 or earlier are setting the market because they owe so little that they can drop the price radically.

It's the folks that bought recently and REOs that are still sitting there with wishing prices. I saw a few Reo move and then nothing.

If the bank can pull their heads out and drop prices way below the pre-01 sellers, then they have a chance. Otherwise they have nothing but holding costs while the building deteriorates further. In places where local government is rapidly increasing fees for vacant properties, those holding costs are going to rack up.

ralphk said...

If banks aggressvively lower home prices to 2001 prices to unload current REO holdings, area comps are also lowered possibly forcing more FB's to just walk away.

Talk about a self perpetuating problem.

KD said...

I work in field services and am seeing so many foreclosed homes in the Modesto/Stockton area. There are many that have not even been lived in yet. On one block you could see 4-5 homes abandoned.

Sippn said...

Who said 1/2 the homes on the market are bank owned? Really?

If that were true, I might be runing to the bank, withdrawing 100% and moving to India.

There is a huge difference (4x) between Foreclosures.com and Realty Trac - can't even trust the traditional media to check their sources anymore.