from Local Attorney, Michael H. Wasserman

Monday, February 23, 2009

Foreclosure Properties never die....and won't just likely fade away either.

We were reminded this weekend that the housing market turmoil is taking its toll on us; the (former) home-owners; their pets; and ALL THE REST OF US WHO OWN or WISH TO OWN HOMES.

The Tribune devoted extensive coverage to the phenomenon of "ghost towns" in Englewood, Garfield Rogers & Washington Parks. Foreclosures force families out of their homes. But those homes remain leaving neighborhoods without neighbors. I first wrote about this problem back in January, 2008. Two more Sunday Trib articles here, and here.

The Indianapolis Star reports on increasingly dogs & cats are being abandoned as owners lose the ability to care for their pets.

But the foreclosures are effecting ALL of us, even if we do not live in those worst hit areas. A new study by Deutsche Bank confirms something I wrote about three weeks ago: there is a large (and growing) inventory of bank-owned (foreclosed) properties. As banks release those properties back into the marketplace, the resulting torrent will almost certainly pressure home prices downward and further slow sales of privately owned homes.

DB looked at the largest 26 real estate markets in the U.S. REO inventories in 8 of those markets exceeded the number of listings in their local MLS. REO properties bested MLS listings 2:1 in 5 of those 8 markets
Overall, DB estimates that the total of foreclosure properties in those markets equaled 77% of all MLS listings.
There are a couple of caveats that may effect the study's numbers:
  • The report counted REO properties, homes scheduled for auction, and assumes two thirds of all pre-foreclosures will end in foreclosure. The bailout package may negate that assumption somewhat.
  • There is some measure of overlap between REO properties and MLS listings, that is, some REOs are also listed in the MLS. The statistics suggest how many REO properties may not be in the MLS, as opposed to trying to show what percentage of properties in the MLS are bank-owned.

So, what is all of this going to mean for us? The National Association of Realtors wants homebuyers' to "get off the fence." I'm not so sure that makes sense for buyers just yet.

Prices are already dropping. Nationally, home prices are down 26% from their peaks, with a little more than 1/2 of the decline coming in the last six months of 2008.

All of this is in turn will impact on the expectations of non distressed property owners (and distressed developers/builders), who will need to at least consider further price-cutting to secure sales.

Not many good options here. Leave the properties off the market and release them at a measured rate? It is hard to justify holding onto empty properties from any policy standpoint other than to support home prices. These properties cause a blight on their neighborhoods and will only deteriorate from neglect over the passage of time. Banks will incur the carrying costs associated with taxes, insurance (?) and will only realize gain (or moneize losses) when they can sell these assets away. Waiting is bad.

Release them all at once? The value of everyones property will drop due to a sudden, torrential flood of new "inventory" to be "absorbed" back into the market. Prices will drop. Market times will soar. Acting too quickly is bad.

What are your thoughts on this matter? How can we return these properties to productive use and preserve current market pricing?