Plymouth Real Estate Musings
This past couple of weeks saw an interesting move by a rather large bank. In case you missed it, Bank of America halted foreclosure proceedings and transactions on allegations by some state attorneys general that the foreclosure process may not have been handled correctly in more than a few instances. Officials are urging other banks to follow Bank of America’s lead and review their foreclosure processes.
It is heart-breaking to think that some families may have been quickly and forcefully moved out of their homes due to the banks allegedly filing fraudulent foreclosure documents. The reality is there are a lot of homes that should be going through the foreclosure process…
From the Wall Street Journal:
As we write today, foreclosed homes are being pulled from the market, and buyers – especially investors intent on quickly reselling or renting out foreclosed properties – are retreating to the sidelines amid growing uncertainty over the extent to which banks filed fraudulent foreclosure documents.
Housing can’t truly recover until the foreclosure crisis ends. [emphasis added]
Where Does Real Estate Go From Here?
For sure, the drying up or cessation of foreclosures – even for a brief period of time, let alone for anything beyond that – will be a disruptor. In 2009, Wayne County, MI did roughly the same thing by halting sheriff’s sales for distressed properties. This had the effect of bringing a ‘tidal wave’ of foreclosures on the market at the end of 2009/beginning of 2010. By holding back on foreclosure proceedings, the market was subsequently flooded with a multitude of distressed properties, which dragged house values down even further (when supply is high and demand is even to low, prices drop).
Do YOU know what will happen next? My crystal ball is kind of muddy and this suspension of foreclosures makes it simply go all snowy, like a TV without an incoming signal.
My experience with people currently looking to purchase a home right now is that about 40 – 50% of the market appears to be comprised of distressed properties. This means that of 20 homes, 10 homes are either a short sale or foreclosure. Of the remaining 10 homes, five homes have been on the market for a fairly lengthy period of time and have either been over priced, or there is something materially not right with the property (location, condition, not updated, etc).
The remaining five homes are where folks looking to purchase are finding a great combination of price and quality. These remaining five homes simply do not last long on the active market. And in some cases, they receive multiple offers and sometimes end up selling above the list price.
A Question From Left Field
I was asked by a potential seller recently if they should put their home on the market now. Their reason for asking was that with the stopping of foreclosure listings for the short term, they felt they might be able to “break through the pack” and appeal to more potential buyers. Fewer homes listed to compete against; actually, I give my future client credit for seeing this possibility.
My take on the impact of Bank Of America’s move to cease foreclosures is that buyers know they will need to wait 30-90 days until the “good deals” come back on to the market. I think the only way that buyers may fall off that buying fence sooner is if there is sustained, upward movement in mortgage interest rates. With the cost of money at historic lows, there is no immediacy or sense of urgency in many buyer’s minds.
That seller looking for an edge in this marketplace? We’ll continue to talk and keep the lines of communication open about when the time is optimal for him to sell. Fortunately for him, there is no pressing, immediate, “Gotta sell it now,” horizon in his near future. Simply, he wants to be able to take advantage of the great home values and mortgage rates on the purchase side. Obviously, he grasps that the same advantage that he wants to use as a buyer will be against him as a seller.
The New Market Looks…Muddled
For all intents and purposes, we’ve entered a market very different from what we’ve seen before. Sure, there are still buyers that want to buy and sellers that want to sell. But the distressed property side of the market already frustrates buyers and angers sellers. Anything that makes the foreclosure process any worse than it already was, for any reason or for any period of time, simply increases that frustration and intensifies that anger.
When there is uncertainty in the market, buyers are cautious.
When buyers are cautious, sellers get nervous.
How do you think the market will react in the next three months? How long do you think the foreclosure stall will last and what will the affects be?
Drop a comment and let’s discuss. Heck, maybe we need to meet over coffee for this one…