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‘Phantom Inventory’ of Foreclosed Properties
Goldmine for Buyers
SACRAMENTO, Calif. – The nation’s banks need cash and their bulging
portfolios of “hidden” foreclosure inventory are one ticket to help
them get it, if they price it right. That’s the bottom line based on analysis
of the foreclosure numbers and today’s economics by ForeclosureS.com, a leading
real estate information provider and publisher of the U.S. Foreclosure Index.
Forget the news headlines that scream “Foreclosures Soar”—just over one
million homes were lost to foreclosure last year with this year on track to hit
1.2 million by year-end. Last week half of the nation’s largest banks failed
the government’s much ballyhooed “stress” test. The test, the
Supervisory Capital Assessment Program or SCAP, looked at current and expected future
bank capital requirements and what might happen to the nation’s 19 largest
bank holding companies in the event of a “worst-case” economic scenario.
“The real
news is many of these banks need to raise capital and whether they announce plans
to do so through common stock offerings (Wells Fargo,
Capital One Financial, U.S. Bancorp, KeyCorp, and BB&T Corp. already have) or
not, that can translate to incredible deals for consumers on bank-owned
foreclosure inventory,” says Alexis McGee, foreclosure expert, educator, and
author.
“This
isn’t a pipedream amid a recession with 8.9 percent national unemployment
and foreclosures at all-time highs,” says McGee, also president of ForeclosureS.com.
“This
is reality as tax incentives beckon, and affordability is at 38-year highs, housing
supplies tighten, and markets bottom. Now is the time for homebuyers and investors
to press capital-hungry banks to unload their ‘phantom’ REO inventory.”
‘Phantom’
inventory is the bulging portfolios of non-performing assets, REO (lender-repossessed
foreclose properties) which are NOT for sale on the nation’s Multiple Listing
Service (MLS is the standard real estate listing service). Currently only about
30% of all bank REO’s are listed for sale in the MLS.
“This is a
staggering low number,” McGee explains. “That leaves 70% of lender-owned
REO’s that no one knows about potentially available for sale. Despite their
need for more capital to shore up financial reserves against future losses, many
banks continue to hold back these foreclosed homes to sell later to prevent flooding
markets and depressing prices,” adds McGee.
“To avoid bidding wars on low-priced MLS listed foreclosures, you need to
find out about and work the ‘phantom’ REO inventory, and then make the
bank an unsolicited offer,” says McGee. “Potential buyers can find those
properties by researching public records for Trustees or Sheriff’s Deeds (type of deed issued to buyer at foreclosure
by a Trustee Sale or Sheriffs Sale)
or from foreclosure information providers like
http://www.foreclosures.com/lists/ that will do the work for you.
Don’t
wait for banks to list the property for sale on their own websites or for it to
make it to the MLS. That is where you competition is and will only create bidding
wars (and higher prices) on well-priced listed REO properties. The great deals will
sell to savvy ‘insider’ buyers who work the ‘phantom inventory.’
And you need a reliable source of inside information to get these deals,”
adds McGee.
Economic developments—official
reports and anecdotal evidence--suggest that buying now makes sense, too. Consider
a few statistics:
- Housing affordability remains at
near-record highs. Based on the National Association of Realtors’ Housing
Affordability Index, a median-income family earning $61,500 could afford a $291,600
home in March assuming a down payment of 20 percent and with 25 percent of gross
income devoted to mortgage principal and interest. In January, that same family
could only afford a $283,400 home and just a $263,300 property at the beginning
of 2008.Total existing-home sales were at a seasonally adjusted annual rate of 4.59
million units in the first quarter, according to NAR statistics, down 3.2 percent
from the fourth quarter, and 6.8 percent from first quarter of 2008.
- First-time homebuyers, capitalizing
on the current affordability, accounted for half of all home purchases during the
first quarter, according NAR’s latest report. In releasing the data, Realtors’
chief economist Lawrence Yun pointed to these nearly 455,000 buyers as “critical”
for the housing recovery.
- Home prices already are climbing
in some areas, NAR reports. In the first quarter, 18 of 152 metropolitan statistical
areas reported year over year price gains, while 134 reported lower median existing
single-family home prices in comparison with the first quarter of 2008. Nationally,
the median existing single-family price was $169,000. That’s 13.8 percent
below the first quarter of 2008.
- Sales of new single-family homes
were at a seasonally adjusted rate of 356,000 in March, down 0.6 percent from February,
according to numbers from the U.S. Census Bureau and the Department of Housing and
Urban Development. The median sales price of a new home in March was $201,400.
- Pending home sales also climbed in
March, according to the NAR’s Pending Home Sales Index. The index, based on
contracts signed, increased 3.2 percent over February, and is up 1.1 percent from
a year ago.
- Qualified first-time homebuyers are
eligible for an $8,000 tax credit for the purchase of
a principal residence on or after January 1, 2009 and before December 1, 2009, according
to provisions of the American Recovery and Reinvestment Act.
- The
government has taken steps to increase the ability of lenders to make more loans.
On May 1, the Federal Reserve announced that
beginning in June, commercial mortgage-backed securities (CMBS) and securities backed
by insurance premium finance loans will be eligible collateral under the Term Asset-Backed
Securities Loan Facility (TALF). The CMBS market came to a standstill in mid-2008.
CMBS accounted for almost half of new commercial mortgage originations in 2007.
- Individual
states, including California, Arizona, Nevada, and Florida, report rebounding housing
markets. In California, for example, the nation’s foreclosure leader, existing
home sales increased nearly 64 percent in March, with the statewide median price
of an existing single-family home up 2.2 percent in March to $253,040 compared with
February 2009. CAR’s Unsold Inventory Index fell to just 5 months in March,
compared with 12.2 months in March 2008.
ForeclosureS.com
has been the professional’s source for accurate foreclosure property information
for more than 20 years. With that in mind, we’re revamping our approach to
the foreclosures numbers in order to provide the most up-to-date, useful reports
that tell the real story of foreclosures across the country. Stay tuned as we debut
a new and improved U.S. Foreclosure Index for the Second Quarter 2009 in July 2009.
In the interim, keep in mind that not all pre-foreclosures
end up as lender-owned repossessions. The foreclosure process varies by state, and
can include notice of default, notice of foreclosure auction, and/or notice of REO
(lender-owned real estate that occurs after a foreclosed property fails to sell
at auction and reverts back to the lender).
For Foreclosure Statistics and Information for your area, as well as expert commentary
from Alexis McGee, president of ForeclosureS.com, please contact Sofia Gutierrez,
ForeclosureS.com, 916-781-0648 or
sofia@halldinpr.com.
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