Dissecting The Real Estate and Foreclosure Market

Dissecting The Real Estate and Foreclosure Market

The the third quarter MBA report stated:
"63 percent were cases where the borrower did not live in the home, the borrower did not respond to repeated attempts by the lender to contact them, or where the borrower failed to perform on a repayment plan or loan modification that was already in place"

This suggests a large number of the foreclosures are in fact properties bought strictly for investment purposes. For the savvy investor, this is good news.

However, a recent article from SmartMoney.com on Yahoo would suggest just the opposite. They wrote:

Foreclosures are touted as great deals (especially by services that sell foreclosure listings). In some areas, real estate agents have even started taking potential buyers on "foreclosure tours."

In reality, however, buying a foreclosed property — or even one in a neighborhood plagued by foreclosures — is risky. "A heavy concentration of foreclosures indicates that there's some sort of economic problem in the region that will keep your home value from at least remaining stable," says Miller. "Or that there was some speculation and there may still be some air left to come out of that market."

In addition to suppressing values, foreclosures lead to increased crime and an overall decline in communities. Brad Charnas, an appraiser in Cleveland, says there are some neighborhoods in his area that may never come back to normal. "You can't believe the damage that's been done by all the homes that have been abandoned," he says. "Squatters are taking over, they're using candles because there's no electricity and putting the homes on fire."

If I can tell you anything from watching CNBC and Bloomberg everyday, media is a great contrarian (reverse) indicator. Just look to the last year to see how great of contrarian indicator they have been:
- That the credit crunch on the financial market was just hype, and the stock market was still bullish as ever, what happened?
- That gold couldn't go any higher, what happened?
- That the dollar couldn't go any lower against the foreign currencies, what happened?

If you bet against the media and experts opinions in finance or investing you would be pretty pleased with you decision.

They can only be wrong so much before you start to realize that they report so reactively and behind the game that they are wrong by the time they form their opinion, or it is just disinformation to advantage those who know the reality. You be the judge, but the one thing that is hard to argue is that they report the correct answer.

So back to the MBA numbers and what those mean to us.

When those numbers are dissected, they tend to suggest that around half of the foreclosures may be strictly defunct investment properties. Roughly the other half would then likely be a combination of people who over extended themselves during the bubble or were pre-bubble owners who are in a severely depressed housing market. Unless the local market is devastated, pre-bubble owners should still be seeing enough equity that they would not be facing foreclosure.

This would indicate that once the investor originated supply dries up, and in some areas this is already taking place, one could expect to see prices stabilize. The key for most will likely lay in the local economic factors. That is what will lead to the winning plays. If the area has factories and businesses closing, people losing jobs, then the market is no good and probably won't be for quite some time. Foreclosures will continue in places like those.

But if you have an area with a solid economy, especially one with job and population growth, the foreclosures now are the opportunity, not the "risk". There are markets across the country that are going up right now, especially ones that didn't ride bubble as much as the others.

Not only are they giving you a solid discount, you are able to employ techniques that didn't work when the bubble was taking place.

If you look at this as a zero sum game, in terms of investors, the people who bought high have already lost (on that specific property) unless they can carry the property for another couple years or more until it gets back the prices they paid at the top. That means there is an equal number of potential winners who can buy low now, but like any cycle, the window only lasts so long.

Now here is the caveat that makes it interesting though, instead of a no-brainer. The overall economic woes of the country as a whole can play a factor, from negligent to huge. This is something that again, goes back to local factors. Some states and counties are tied more closely to the national economy than others. If you haven't researched it your area, don't think you can assume the answer because a huge international company is or isn't located there. That is not an indicator either way. It is lots of things: demographics, growth, employment, big and small businesses, industry sectors, etc. If you search online you will can probably find an article that was written in recent history explaining the ties your area has backed by hard data. It is a reoccurring news piece any time the economy is moving in either direction.

Also, unless you have made good gains already, I would take profits when they emerge and not parlay them getting greedy. A lot of data I have seen suggests many markets having a "V" shaped price projection, and not a "U", and even if the "V" emerges (which translates just how it looks visually, a rapid decline, bouncing off the bottom to a rapid incline), it isn't a dead cat bounce.


Know the cycle,win the

Know the cycle,win the game.

Dissecting The Real Estate and Foreclosure Market

Your article is very good. Thanks fora lot of pointers. I live in Northern Virginia. It is a V type of analysis. If you shop arround there is a lot of foreclosure by lendrs. its 60% lender property. The real estate values have declined 5% to date. The property assessments were manipulated so that property taxis will not decline. The Fairfax county government is warning all the schools of budget cuts. The properies are not selling with exceptional properties being snapped fast by investers. The area has a lot of government business and the Federal government is still in the realinghnment of military bases in the area. The market has not hit bottom yet.




new at this live in small town houses sit on market for a while what if you cant sell that quick you cant afford to make payments you borrow to buy if you have a mortage on your own home plus make payments on another loan can you get money to buy and not have to pay it back until you sell again im starting so i dont know much please comment back soon

great info

thank you for posting it i plan to learn this real estate system

Great post rebucks, thanks

Great post rebucks, thanks for clarifying some points regarding the foreclosure market and finding the right area to invest in.

Disecting the Real Estate and Foreclosure Market

There is still a gap between buyers and sellers in Nothern Virginia. Sales have been slow in 2006 and 2007 because sellers want to obtain the best price possible for their property. This is understandable. Right now, however, because buyers have the upper hand in the market, sellers are finding that they simply can’t get the same prices that their neighborhood may have sold for just last year, or in 2006.

The Average Sales Price Percent Change Month-Over-The-Year, Single-Family Detached NVAR data confirms this situation. As in any bargaining situation, the seller pitches the high-ball and the buyer pitches a low-ball and they come together somewhere in between. It is rare in the existing market that a deal is struck above the seller’s request.

During the frenzied time of the market in 2005 and early 2006, multiple offers on homes often resulted in offers escalating above the list price. This is a rarity in today’s market.

In 2005 the sales price when compared to asking price was 98 percent of the list price. When you look at 2006 data, you will see that the level fell even more. It fell sharply down to 93 percent of asking price. That’s a 7 percent gap between a seller’s expectations for then current market value of a home and a prospective buyer’s idea of that home’s value. Sale Price as % of List Price shows this through 2006. The gap has not lessened, and the buyer is winning. That's good news for investors.

The fact that there are more homes on the market means that buyers can search for their first-choice home without imminent fear that unless they make an offer that day, it may be snapped up. There is also more time for buyers to get a home inspection, an appraisal and to secure the best loan product. In November 2006, the average house was on the market for 85 days, which resembles the time it took to sell a home in November of 1998, which was 90 days. In 2007, the figures show that the 90 days on the market has been exceeded in numerous pockets of the Metropolitan Regional Real Estate market.

Buyers today are also finding that sellers are willing to offer concessions to help cover some closing costs or are willing to bargain more on the selling price. We have all heard about the flat screen TV and the exotic car, thrown in to clinch the deal [but the exotic car is no longer allowed by lenders].

Real estate sales in Northern Virginia declined by almost 22% in January and February 2008. This is reported out of the National Association of Realtors and the Northern Virginia Association of Realtors (official verified data). Prices in NOVA likewise have cooled substantially, and it appears we have not yet reached the bottom. There is an uptick in prices and activity expected this summer, but that all depends on how the remainder of the jobs market and goods in this area plays out. While this area was previously insulated because of the Federal Government and Military in the area, there has been substantisl influx of private industry, and research of demographics, growth, employment, big and small businesses, industry sectors, etc. reflect that the NOVA area is no longer "recession proof." For now – it’s wait and see and take advantage of short sales and REO's where you can. They are definitely out there ! NOVA was recently listed at 13th in the nation on the REO/Foreclosure scale.

Source: Northern Virginia Association of Realtors, National Association of Realtors, George Mason University Center for Regional Analysis, Metropolitan Regional Information Systems

Summary courtesy of: Texas Irish Lady


Texas Irish Lady


IF you can't sell it right away then you might have to rent it so that you won't stuck with two mortgages payment. Do a six month or a year lease and still have it on the market. Just make sure the rent at least covers all your expenses like your mortage payment, taxes and insurance while still building equity. Good luck and happy investing!


Media and Market Cycles

Thanx rebucks for your thoughts and insights re: media as contrarian indicator and the dissection of a community and its valuation as connected to federal, regional, state, and related factors.

Also, Texas Irish lady, your ability to provide a balanced overview is really cool! I am new to this/these ideas though and appreciate good research but don't know where to start...I live/work in SE Ohio and western WV...the overall area is an "island" unto itself with Pittsburg north, Columbus west, Morgantown east, and Charleston south. Any tips where I can research similar regional data that you referred to in your neck of the woods?

Kind Regards, wib


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And we know that for those who love God, that is, for those who are called according to his purpose, all things are working together for good.
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