For many real estate investors, these past several months have brought a welcome sigh of relief as homeowners have come into the market in truly satisfying numbers. In many parts of the country the steady downward slide in prices has tapered off and we have been seeing what may be the bottom in terms of further price declines… or NOT!
Are Some Hyping Up the Real Estate Market Too Soon?
The numbers throughout the Summer have been promoted with great fanfare… the Schiller-Case Index and National Board of Realtors proclaiming that prices may have bottomed out and the worst is over. Great news if you can believe it!
While I am delighted that prices have stabilized and even increased in some markets and that home sales over these past several months have been solid and even matching sales volumes from 2005…I have been troubled and what I haven’t been able to put my finger on is this…
With all of the homes going into foreclosure, when will this inventory start to pull this “current” housing recovery down? This Bloomberg article is not good news… and suggests that we have a long way to go before all of the current and projected foreclosed inventory can be absorbed.
So the million dollar question is this… How long can lenders continue to hold their REO inventory?
What do things Really look like?
Many of us have heard that the 3rd quarter would be the time when lenders would start to get more aggressive with selling their REOs. I haven’t seen much of a change in the Baltimore market, and from what I am hearing REO sales have not increased significantly in other markets either. Even though the number of foreclosures is high and will only go higher as the above article suggests, how long can the banks hang on?
The honest truth… I don’t know!
But here is what I sense…
- Lenders will have to start to sell off their inventory at some time in the future. They cannot hang onto these foreclosed properties forever. I predict that we start to see real movement leading up to April 2010 as the end of the year 2009 financial results are completed and reported.
- For now lenders are primarily dumping properties in lower valued areas… where there is less impact on property values.
- Lenders are trying desperately to hang onto mid and higher-end properties because they know that when they start to sell this inventory their balances sheets and the balance sheets of all other lenders are going to take huge hits. In addition, these high end (lower price) REO sales are going to tank the values of complete developments. Much like waht happened in California and Vegas.
- Cash is king. And if you don’t have cash, you better have an otherwise clean offer. No contingencies… no weasel clauses!
- Continued vigilance on your part is paramount because mid and higher-priced homes will more then likely start another slow decline in value that will continue through 2010.
While neither myself or anyone else for matter can predict what will happen with certainty, this is the direction I believe we are headed in. It would be extremely helpful for each of us to continue to ascertain what is happening in our markets and report it as we see it happening. We will all benefit greatly as a result.
Until next week…