It Has Begun – The New Upswing in REOs

Like the sound of thunder in the distance, another wave of home foreclosure listings has been getting closer and closer. Now it’s here.

But the increase in REOs, homes owned by banks and mortgage lending companies that are finally getting listed on local markets can be a bit confusing because the process is so lengthy.

It can take from one to two years for some homes to make it through the foreclosure process, so that means they are not listed until the process is completed and the foreclosure is legally finalized. So, there’s a pipeline filled with houses in the process of foreclosure, and more of them are pouring out the other end right now.

RealtorMag.com helped me sort out this phenomenon by explaining, “Sixty-one percent of the loans still in the foreclosure process were originated during the housing bubble years of 2004 to 2008, down from 68 percent last year and 75 percent two years ago…

“Bank repossessions last month were at a 30-month high, rising in 44 states. Still, REOs were less than half their peak of 102,134 in September 2010.”
We’re 5 years down the road from that peak in September 2010, and REOs are on the rise.

I’m wrapping my brain around this phenomenon, and thinking about what it means to investors as well as what it means to homeowners. Daren Blomquist, RealtyTrac VP is quoted as saying, "… foreclosure starts in July [2015] were at the lowest level since November 2005 — a nearly 10-year low that demonstrates the recent rise in bank repossessions and represents banks flushing out old distress rather than new distress being pushed into the pipeline.”

Blomquist sees the situation as a pipeline, too, with distressed properties coming out of it and onto the local real estate market, at long last.

Residential real estate investors are the most logical buyers for these double distressed homes, by which I mean the houses very likely suffered from deferred maintenance when they went into foreclosure and now suffer from the ravages of sitting vacant, too. Not a good combination, is it?

It’s not a good combination if you’re a homeowner looking to buy a house that’s a good value and then move into it and live there right away. But if you’re an investor looking for an opportunity to repair and remodel and then re-sell the house, it could be a goldmine.

It just depends on the local market where you’re located, how many houses are listed and how many of them are REOs.