Potential home buyers who are frustrated with the limited inventory can try to expand their target areas. But if you are already set on the neighborhood in which you’d like to live, what then?
Take a closer look at the fixers.
It is VERY common that buyers only want to consider the homes in top condition – but how many of those do you see? Hardly any, because sellers typically don’t spend the money on upkeep, or spruce them up, in order to sell.
If you plan to spend at least $25,000 to $50,000 on any house you buy, it’ll open up the selection tremendously, and hopefully you’ll find one where you can spend less. To help readers become more comfortable with repairing/improving homes, I’ll keep the posts coming – here’s a youtube on the cantina doors:
This youtube was recorded on January 19th to show an out-of-town buyer, which was the day it was inputted onto the MLS (before the work was even complete, as you will hear). Today it was marked pending, and another example that buyers are being very active in the new year:
Whether they like it or not, the nation’s banks control most of the country’s shadow inventory, according to a report Friday from Morgan Stanley.
Even more, properties in imminent default are typically cheaper homes with prime mortgages. The analyst adds that their findings buck conventional wisdom that these homes are either concentrated in the slums of Detroit, or prevalent amongst cardboard cutter McMansion neighborhoods.
The shadow inventory, they say, is the biggest problem for average Americans living in the nation’s major cities.
And, what’s more, the homes are more and more being controlled by the banks, as opposed to Fannie Mae, Freddie Mac or private securitization trusts.
“While agencies certainly maintain control over a large portion of the shadow inventory at just over a third, we can see that the majority of the control over delinquencies is in the hands of the banks, and their share has increased over the past year,” reported Oliver Chang, James Egan and Vishwanath Tirupattur (see chart below):
“This may be because borrowers are becoming delinquent at a faster rate for bank-held loans, but checking transition rates for each controlling party, we do not see a significantly larger change in transitions into delinquency for bank-held loans,” they added.
Of the shadow inventory, 75% are valued below $250,000, showing that McMansions have a small share of delinquencies (see below chart):
Further, the shadow inventory is growing across all of the United States. The analyst expect that more than 8 million liquidations are in order over the next five years before housing stabilizes.
“While hard-hit cities represent a more than fair share of shadow inventory, its distribution broadly encompasses all corners of the country,” said the analysts.
The liquidation of subprime early on in the recession is now being replaced by later delinquencies in prime collateral. The shift in collateral is making the supply imbalance worse for the best part of the credit spectrum.
CoreLogic said in September that based on the shear number of prime mortgages in the market, that foreclosure and delinquency rates would steadily tick upward. Compared to the less than 3.5 million subprime, there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.
“We do see a slowdown in liquidation rates of bankheld loans, suggesting that the increasing share of shadow inventory is due to banks holding onto their delinquent loans longer than agencies or private securitization trusts,” they said.
Home values are falling at an accelerating rate in many cities across the U.S.
The Wall Street Journal’s latest quarterly survey of housing-market conditions found that prices declined in all of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier.
The size of the year-to-year price declines was greater than the previous quarter’s in all but three of the markets, the latest indication that the housing market faces considerable challenges.
Inventory levels, meanwhile, are rising in many markets as the number of unsold homes piles up.
Home values dropped the most in cities that have already been hard-hit by the housing bust, including Miami, Orlando, Atlanta, and Chicago, according to data from real-estate website Zillow.com. But price declines also intensified in several markets that so far have escaped the brunt of the downturn, including Seattle and Portland, Ore.
Falling prices are a reflection of weak demand and tight credit conditions that reduce the number of potential buyers.
“There are just not a lot of renters with confidence, with a down payment, with good credit, and without a lot of additional debt,” said John Burns, a homebuilder consultant in Irvine, Calif.
On the inventory front, New York’s Long Island had enough homes on the market at the end of December to last 15 months at the average sales pace. The supply of unsold homes stood at 14 months in Charlotte, N.C., and Nashville, Tenn., and at nearly 13 months for northern New Jersey.
Markets are generally considered balanced when the supply is around six months.
A few markets, including Sacramento and San Diego, are seeing inventories fall to healthier levels as low prices spur interest from first-time buyers and investors, while others, such as Washington, D.C., and Boston, have been cushioned by more stable economies.
“We’re still running at half speed,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. “Sales are below year-ago levels and inventory is higher than it was a year ago.” Far-flung suburbs continue to fare worse than homes located closer to core metro centers, he says.
Economists say that the biggest risk to the housing market is that job growth doesn’t pick up. “Without improvement in unemployment, confidence stays low. Purchasing stays low,” says Stan Humphries, chief economist at Zillow.
Market conditions could get worse in the months ahead. Millions of homeowners are in some stage of foreclosure or are seriously delinquent on their mortgages, and millions more owe more than their homes are worth.
Real-estate agents are bracing for an uptick in distressed properties hitting the market, including foreclosures being sold by banks and homes sold by owners via a short sale, in which banks agree to a sale for less than the amount owed.
Sales of foreclosed homes are partly responsible for reducing home values because banks tend to reduce prices quickly to sell the homes. Sales of foreclosures slowed in some markets at the end of last year as document-handling problems raised questions about the integrity of their foreclosure processes. But that could change as banks pick up the pace of foreclosures.
Real-estate agents say that the threat of future price declines has led to a months-long standoff between buyers and sellers.
Sellers spurn what they see as low-ball offers, while buyers are demanding discounts because they are “convinced prices will drop further, and they don’t want to feel like suckers six months later,” says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based real-estate brokerage that operates in nine states. The result is that “it’s high noon at the O.K. Corral on every single transaction.”
Agents say that sluggish housing markets are requiring sellers to become much more realistic about setting prices that will spur dealsthe prices they set.
After receiving no offers on a three-bedroom home in Oceanside, Calif., during the first week on the market, real-estate agent Jim Klinge convinced the seller to slash $30,000 from the price, to $420,000.
That drew two full-price offers, and the home sold last week in an all-cash deal. “The drop in price was critical to reignite urgency for buyers,” said Mr. Klinge.
Some sellers have opted to pull their homes from the market rather than lower their prices, either because they believe values will improve or because cutting the price would mean selling for less than the amount owed to the bank.
“I know so many people here who are unwilling landlords,” said Mr. Kelman. “They’re now spending their Friday nights fixing leaky faucets for the tenants they’ve brought into their house.”
Our blog-friend Tom Tarrant is wrapping up his last flip in San Antonio, and bringing his talents back to San Diego. Hopefully once Tom and family are back in town we can experience some of his fine work in person. Here is the youtube of the latest project (love the Chevy truck in the garage!) from his blog,tomtarrant.com:
We had tons of fun this year sharing our adventures on the blog and attracted alot of attention doing it. This Spring my blog was voted Top 10 Real Estate Investing Blogs by Biggerpockets.com. This summer I was approached by 2 different production companies to do Real Estate Reality Shows and we completed and sold 2 big rehab high-end projects; The Neighbors House and The Target House. My killer rehab called The Hat Trick House was also featured on the front page of the local newspaper this summer which drew the attention of a local City Councilwoman who called us in to consult on urban redevelopment for the City. Our blog traffic doubled from last years numbers to over 80,000 visitors and my YouTube channel is blowing up. Happy New Year to everyone who’s followed along with us, thanks for all your comments and in less than 4 short weeks you’ll get to see a Great change of House Flipping Scenery from us, San Diego here we come!