Are Bank Owned Homes Stalling Our Real Estate Market?
The natural progression of the real estate market is driven by something called the "Trickle Up" theory. Most home sellers transform into home buyers after their home sells. This is what causes the real estate market to move in waves starting with lower priced and rolling towards the higher priced ones. A couple sells their first home and then upgrades to a larger one. That purchase allows the seller of the larger one to move up to the next level and so on up the line. Thus "Trickle Up.".
But what happens when the sellers don't transform into buyers? A home gets sold and the seller stops the wave right there by not buying a new home at the higher level. That is exactly what is currently happening with bank owned properties. (REO's)
The market is hot right now for first time home buyers. Inventories are at an all time high, prices are heavily discounted, and interest rates are at a historical low. This should be the recipe for the real estate version of "The Perfect Storm." Shouldn't it?
Smart first time home buyers are coming into the market, taking advantage of the current real estate environment, qualifying for their $8000 first time home buyer tax credit, and buying their first homes. A large portion of these first time purchases are bank owned homes. Why not? Many of these homes are in good condition and priced well below market. It is very smart to be a first time home buyer in this market.
The problem as I see it is that the inventory of bank owned starter homes is also at a historically high level. A huge number of these sales are not freeing up a buyer to move up to the next level. The wave is stopped and never allowed to trickle up to the higher markets. Sadly, those owners were "Freed Up" in the past months when the bank foreclosed on their home.
What does this mean for the short time market ahead? What does this mean for the distant future? Are we going to have to rebuild the market from the ground up?
When you choose us to handle your Vancouver Washington real estate needs, you choose a team of realtors® who care about you and your family. Buying or selling a home is always more enjoyable when you work with professionals who will listen to your needs and who will work together with you to achieve your objective. We are very familiar with all types a real estate in Clark County and we specialize in Vancouver, Ridgefield and Battle Ground. We are also very experienced with new home and custom home construction having assisted several local builders in selling new neighborhoods in the Vancouver Washington area. Additionally, we have helped numerous families build their own Vancouver Washington dream homes. We are dedicated to helping you make intelligent, informed decisions and to providing you with exceptional service. Go to www.ernw.org for more information. See our video here.
When you choose us to handle your Vancouver Washington real estate needs, you choose a team of realtors® who care about you and your family. Buying or selling a home is always more enjoyable when you work with professionals who will listen to your needs and who will work together with you to achieve your objective. We are very familiar with all types a real estate in Clark Countyand we specialize in Vancouver, Ridgefield and Battle Ground. We are also very experienced with new home and custom home construction having assisted several local builders in selling new neighborhoods in the Vancouver Washington area. Additionally, we have helped numerous families build their own dream homes. We are dedicated to helping you make intelligent, informed decisions and to providing you with exceptional service.
Mark,
There is no doubt that all the bank owned foreclosures are affecting the normal real estate market.
I think so. It is hard to move short sales too. I am looking forward to the Market cleaning out-Dinah Lee
Mark - In the Louisville area, things are a little better. First-time home buyers are shying away from homes that need a lot of work because they can find a move-in ready home for an affordable price. Plus, investors are snatching up the best deals with-in days if not hours of a home hitting the market. That being said, we have significantly more activity in investment-grade properties, remodeled flip homes, and new construction than traditional resale. So, your point about the wave stopping is valid.
First thing I hear from my buyers is "What kind of deals on forclosures are out there?"
Everyone is looking for a foreclosure, well almost...short sales are a major problem and make up nearly 1/3 or more of our marketplace....and take so long....whew...let's get 'em cleared out...if only the banks were helping us!! Unfortunately, I'm finding it's the banks that are the problem
Unfortunately, the forecast looks like there is a bigger wave of foreclosures on the way. We just saw a 503% jump in foreclosures here in Hawaii, after the temporary stay on foreclosures expired. As unemployment rises, so will the foreclosured property inventory.
Wow-503% ? That is a huge number. Looks like a good time to buy there.
I think if the banks get their act together and start working their short sale departments and REO departments to work as well as home sellers and buyers do in a regular market I think it will fix itself. But, right now I think you are right, in a couple years, we could be starting over.
Unfortunately the rules and guidelines that were implemented from a few that were breaking the law will be a direct result of exactly what you are talking about-
Fannie/Freddie and FHA all have rules on the amount of equity one person can have in order to move up into another property. 25% or more of equity or they have to be approved for both properties.... I totally understand the reasoning behind it but it will cause more stagnat growth as a result.
Example is a young couple gradcuate from college 3 years ago, get married and purchase a starter home for $189,000. They put 5% down on a 30 yr fixed loan and start their careers as a Nurse and Engineer. Income is stable, recent baby addition and now they are ready to move up to the next level. THey have $18,000 saved for a down payment. Realotrs tell them they must sell for $170,000 in order to move property so they decide to rent this out and wait until the market turns. They call me to become pre-approved and I had to break the news that this is not an option unless they qualify for both homes.... FHA, Fannie Mae and Freddie Mac guideline.
They sit and wait- in a house they have grown out of and in an area that they DID not want to raise their childeren. They did everything right but have to pay the price for the people that were allowed to lie and cheat purchasing a lower valued home and then let theirs go in to foreclosure.
Adding rules to the game in the middle of the game is not the answer- prosecuting those that lie & cheat clears the path for fair market players and unitl my clients have a chance to buy another home this market will stay frozen.