(Originally posted on June 12, 2007)
Long time no see
It's been 23 days since I've last written an entry, and it's not for lack of things to talk about. I've just been trying to wrap my mind around the changing market, and every time I think I'm ready to write, more news arrives on the horizon.
When I first began this blog, my commitment was to be positive - not report more negative news along with the masses. In an effort to retain my integrity, I'm going to talk about short sales and the "F" word - foreclosures, with a focus on buyers.
There's a tsunami coming in real estate
Ominous heading, isn't it? Back on April 29th, my blog entry was about short sales. On that day, there were 1,518 short sales, 880 foreclosures and 25,744 listings in Las Vegas. Today, a month and a half later, here's the numbers: 2,015 short sales, 1,205 foreclosures and 26,951 listings. That's a 33% increase in short sales and a 37% increase in foreclosures.
As a refresher, a short sale is also known as pre-foreclosure. The homeowner is in trouble financially, asks for a reduction in the amount owed on the loan from the lender so the seller can price their home competitively. The bad part is that whatever amount the lender forgives, they send a 1099 for the write-off, which the homeowner is supposed to pay taxes on to the IRS. That's not the point, though.
Let's go back to today's short sale number - 2,015. In about 240 days, these short sales will be foreclosures. That means the bank owns the home, and banks aren't in the business of having real estate as inventory. They have to get rid of the homes. How do they do that? Cut the price.
The bad news
If your home is listed for sale, or you're contemplating selling in the near future, listen carefully. You have a very short window of opportunity to sell your home. If your Realtor suggested a lower listing price than you would agree to, and you got your way - pick up the phone right now and call them up. (It's okay, I'll wait.)
You see, when that tsunami of foreclosures hits, you'll be competing against sellers with no emotional ties to your competing home. It will be slash and burn. I promise you, we haven't seen this before, and it's not going to be pretty. Now is the time to take stock of what your goal is - make a modest profit, break even, or cut your losses and get out of Dodge. I can tell you from personal experience that almost every listing I have has been reduced this week.
Here's a link to an article on SmartMoney.com - it corroborates the information I've given here.
The good news
If you're a buyer, you are going to have lots of homes to choose from, so start saving your down payment, and put on comfortable shoes because we'll be running all over the place together.
Now remember, I said this was a tsunami, not a perfect storm. Of course I can't predict where interest rates will be in 6-8 months, but today there was a frenzy in the mortgage rates due to a slip of the tongue by Ben Bernanke, rates climbed a point or more today. In a perfect storm, we'd have low, low rates along with 2004 home prices. We'll see, maybe it will still happen. As long as you're on the buying side, it could be a happy time. However, with the sheer volume of foreclosures we're talking about, someone you know will be effected in a negative way.
You get what you pay for
Due to the investor market in 2004-2005, there are short sales and foreclosures in Las Vegas that look like model homes. Why? Because nobody ever lived in them! That's why they're being foreclosed on. No renter, no ability to flip, negative equity every month = financial disaster.
A picture perfect home in foreclosure is not the norm, though. I've seen more foreclosures than I care to admit, and they're not pretty. In fact, it's quite sad. On the mild side, you see remnants of people's lives left behind, not important enough to take with them, or no room to store their stuff wherever they're going.
On the harsher side, you see total destruction. Folks who vent their frustration of being evicted on everything they held dear. I've seen demolished drywall, doors off hinges, plumbing wrenched from the walls, graffiti - you name it, I've seen it.
The average buyer looking at a foreclosure isn't going to buy one. It's too much work, there's too much unknown. How much will the repairs cost? What damage is done that I don't know about? Foreclosures are sold "as-is" and that's not something I'm prepared to gamble on. A mortgage on a money pit is not my idea of fun.
If you're a buyer, explore all avenues of available homes. I just suggest you don't wait for this "tsunami" and expect to hit paydirt - because I think there's just a lot of fool's gold to be had. If you're a seller, take my advice to heart - sell while you can at a price you can live with.