Conventional wisdom is that foreclosures reduce neighborhood values. It turns out, that isn’t the case. It’s easy to see why people come to this erroneous conclusion. Properties that go through foreclosure often sell for less than recent comparable sales, particularly after the peak of the housing bubble when values were grossly inflated and ripe for a serious correction. However, it wasn’t the foreclosure that caused the discount, it was a motivated seller dealing with a property in poor condition that ultimately caused prices to fall.
You wouldn’t know it by the huge inventories they currently manage, but lenders are not in the real estate business. They don’t profit from the real estate they own. They only obtain real estate when the profitable loan they made turns bad. The asset management departments of major banks are supposed to be capital recycling units who extract the original loan capital from a bad loan through orderly disposition of real estate owned. Obviously, it hasn’t worked out that way over the last six years.
As the toxic loans from the real estate bubble caused wave after wave of defaults, lenders began acquiring properties at unprecedented rates. In fact, they obtained so much property so fast, that their resale activities began to negatively impact market pricing. It got so bad in 2008 that lenders collectively decided to withhold their own real estate owned from the MLS, and they decided to stop foreclosing on delinquent mortgage holders and allow them to squat in their homes without making payments. With their own visible inventories of real estate owned ballooning and an even more massive shadow inventory building, lenders had a real problem.
Lenders would like to wait until prices recover to peak values before liquidating their real estate owned. Any liquidations carried out at lower values cause significant losses. Too many of these losses, and lenders go bankrupt. To raise property prices and lower lender’s cost of capital, the federal reserve has lowered interest rates to zero. Lenders can borrow money at little or no cost from the federal reserve and depositors, so the pressure to liquidate is greatly reduced. The lower interest rates raises thresholds of affordability and allows buyers to borrow large amounts to make the inflated prices of the housing bubble relatively payment affordable.
With no cost push and high payment affordability, the only thing preventing house prices from going back up was the supply of houses requiring liquidation. Beginning in early 2012 across the Southwestern United States, lenders slowed their foreclosure rates and dramatically decreased the rate at which they acquired new properties at foreclosure auctions. This has enabled them to reduce the number of real estate owned properties on their books. Lately, real estate owned has not been a bargain because lenders have quite a bit less of it.
If foreclosures caused neighborhood values to drop as many contend, why are recent bank liquidations fetching prices higher than comparable resales? The problem was never foreclosures, it was always an issue of seller motivation and property condition. Previously, lenders had so much property they needed to discount it in order to find a buyer. Currently, lenders don’t have so much real estate owned, so they don’t need to discount it in order to sell. Since lenders have less supply to liquidate, and since they have no cost pressure or regulator pressure to liquidate, they can hold out for higher prices.
Another major reason lenders used to discount their prices on real estate owned is due to its poor condition. No borrower facing foreclosure spends any money on upkeep. One of the biggest fallacies of shadow inventory is that it’s better to have an occupant in a property than leaving it vacant. Perhaps in rough neighborhoods prone to property crime this may be true, but for the most part, occupants break things and don’t repair them. Houses deteriorate when occupied by delinquent mortgage squatters because they are loathe to spend a penny keeping up a property they are doomed to lose. As a result, when lenders finally take back these properties in a foreclosure auction, they are run down and in poorer condition than a traditional sale. Further, lenders who are already going to take a large loss rarely spend money fixing a property even when it is cost effective to do so. Lenders sell their run down real estate owned “as is,” which usually means “as is trashed.”
The bottom line is that seller motivation and poor property condition are largely responsible for lower resale values of bank-owned properties. Once these properties are brought back to the standards of the neighborhood, their resale values are indistinguishable from other properties. In fact, if these properties are improved, they actually increase neighborhood values. Most third-party purchases at auction are bought by flippers who improve the properties and sell them for a premium. The success of these entrepreneurs is testament to the fact that foreclosures do not reduce neighborhood values.
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
We're sorry, but it seems that we're having some problems loading MLS # S703402 from our database. Please check back soon.
Proprietary Irvine Housing News home purchase analysis
4 TORRIGIANI AISLE Irvine, CA 92606
$509,000 …….. Asking Price
$315,000 ………. Purchase Price
5/8/2000 ………. Purchase Date
$194,000 ………. Gross Gain (Loss)
($25,200) ………… Commissions and Costs at 8%
============================================
$168,800 ………. Net Gain (Loss)
============================================
61.6% ………. Gross Percent Change
53.6% ………. Net Percent Change
3.9% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$509,000 …….. Asking Price
$17,815 ………… 3.5% Down FHA Financing
3.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$491,185 …….. Mortgage
$143,407 ………. Income Requirement
$2,247 ………… Monthly Mortgage Payment
$441 ………… Property Tax at 1.04%
$42 ………… Mello Roos & Special Taxes
$127 ………… Homeowners Insurance at 0.3%
$512 ………… Private Mortgage Insurance
$336 ………… Homeowners Association Fees
============================================
$3,705 ………. Monthly Cash Outlays
($484) ………. Tax Savings
($753) ………. Equity Hidden in Payment
$21 ………….. Lost Income to Down Payment
$84 ………….. Maintenance and Replacement Reserves
============================================
$2,573 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,590 ………… Furnishing and Move In at 1% + $1,500
$6,590 ………… Closing Costs at 1% + $1,500
$4,912 ………… Interest Points
$17,815 ………… Down Payment
============================================
$35,907 ………. Total Cash Costs
$39,400 ………. Emergency Cash Reserves
============================================
$75,307 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
Cost of Ownership Analysis
Are you ready to make an offer, but you are worried the cost of ownership is really more than you can afford? Don't make a mistake that might cost you the family home, your life savings, and your good credit! Get the advice of a seasoned professional. Contact us at info@ochousingnews.com today!
We produce detailed reports showing the cost of ownership based on the most likely transaction price and current financing terms. You will know how much you will spend each month in out-of-pocket expenditures and the true monthly cost of ownership factoring in tax deductions, loan amortization, and opportunity costs on your down payment. In addition, we show you how this cost compares to a rental of equal quality to make sure buying is the right decision for your situation.
An OC Housing News Cost of Ownership Analysis will calm your worries and give you peace-of-mind.
Let us show you the way!
Reports are available for properties in the Southern California MLS coverage area, and are generally delivered within 24-72 hours. If you wish to receive multiple properties, please contact us at info@ochousingnews.com, and we will prepare the reports for you.
OC Housing News FREE Guides!
Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."Comparative Market Analysis
Are you ready to make an offer, but you are worried you will either (1) underbid and miss the property or (2) overbid and pay too much? Don't make a mistake and miss your dream home, or worse yet, overpay for it! Get the advice of a seasoned professional. Contact us at info@ochousingnews.com today!
Are you thinking about selling, but you are worried you will either (1) overprice and fail to sell or (2) underprice and leave money at the negotiating table? We are the experts in real estate valuation. Work with us to set the right prices to sell your property quickly for the largest amount possible. Let us show you what your property is worth today!
An OC Housing News Comparative Market Analysis will calm your worries and give you peace-of-mind.
See for yourself right now!
Reports are available for properties in the Southern California MLS coverage area, and are generally delivered within 24-72 hours. If you wish to receive multiple properties, please contact us at info@ochousingnews.com, and we will prepare the reports for you.
 |
$529,000 4 GARZONI AISLE |
0 miles 4 bd / 2.5 ba 2,000 Sq. Ft. |
|
 |
$494,000 17 MEDICI AISLE |
0 miles 3 bd / 2 ba 1,500 Sq. Ft. |
|
 |
$525,000 50 FRINGE TREE |
0.58 miles 3 bd / 2.5 ba 2,200 Sq. Ft. |
|
 |
$529,988 164 AGOSTINO |
0.98 miles 3 bd / 2.5 ba 1,610 Sq. Ft. |
|
 |
$469,000 28 ROCKWOOD |
1.07 miles 3 bd / 2.5 ba 1,520 Sq. Ft. |
|
 |
$459,000 12 ROCKWOOD |
1.07 miles 3 bd / 2.5 ba 1,578 Sq. Ft. |
|
 |
$649,000 31 WATERWAY #3 |
1.38 miles 2 bd / 1.75 ba 1,930 Sq. Ft. |
|
 |
$738,000 14 SOUTHWIND #53 |
1.38 miles 2 bd / 2 ba 1,930 Sq. Ft. |
|
 |
$899,900 59 LAKEVIEW #22 |
1.39 miles 3 bd / 2.25 ba 2,044 Sq. Ft. |
|
 |
$999,000 55 LAKEVIEW |
1.39 miles 3 bd / 2.25 ba 2,400 Sq. Ft. |
Analysis: Investors Driving Recovery as Activity Surges
A recent analysis from John Burns Real Estate Consulting suggests that investors may be the biggest driving force in the housing recovery.
In a report from the company, senior research analyst Erik Franks noted that investors are buying homes at an increased pace and at prices that allow for a reasonable rental return.
“Investors are buying homes at a more rapid pace than ever before, and this time their investments actually make sense,” Franks wrote.
Across the 167 metro areas analyzed by the company, investor activity as a share of all transactions rose to 29.6 percent in the first quarter of 2012, up from a low of 23.6 percent in the last quarter of 2009. Furthermore, the company’s “on the ground” research leads analysts to believe this year’s second-quarter activity exceeded the first quarter’s, with investor activity spiking 2 percent.
Investor activity has returned to Stockton, Miami, Las Vegas, Riverside-San Bernardino, Sacramento, and Phoenix, all areas investors were previously reluctant to enter after their old investments crashed. According to the report, some markets are now “completely dominated” by investors, such as Las Vegas (where investor activity makes up 50 percent of total activity) and Phoenix (46 percent).
Investors also seem to be attracted to small markets-particularly those in inland California, the report notes. Second home buyers are also making their way into smaller markets, leading to large activity increases in Naples, The Villages, Tucson, and Panama City.
While Franks conceded that these signs of increased investor interest may point to a false recovery, he said John Burns Real Estate Consulting is not concerned and welcomes the return of private capital.
“Most of these investors are paying all cash and buying homes below replacement cost,” Franks wrote. “They are helping the market recover by removing supply at the low end of the market and driving real buyers to higher price points, including new homes.”
Franks also wrote that the company doesn’t foresee a scenario in which investors dump their stock on the market unless it’s clear prices are dropping again. For now, Franks said he and his colleagues feel comfortable for the near future.
“We are hyper-focused on the potential positive result, which is that rising prices get fence-sitting consumers off the fence. We are seeing this occur in some pockets around the country.”