A real estate market recovery? Not so fast… Or maybe….
I’m returning to DC after having met with an asset manager of a quasi government organization that buys most of the mortgages in the country. We went to lunch and discussed the future of the REO business (bank foreclosures) and it is clear there are several more waives of foreclosures to come before we’ve flushed out the challenges in the real estate market. There are essentially four areas of REO assets and we have really only cleared through one.
1. Subprime mortgages – we’re mostly done with the bulk of these
2. Prime mortgages – moving through this inventory now, unemployment is causing this to increase
3. ARMS –resets coming in the next couple years which will put more inventory on the market
4. Commercial – the damage has just begun
Additionally, lenders are holding back huge stock piles of inventory known as the “ghost market” and releasing it slowly.
The good news for sellers though is I think most of the price declines have stopped in the DC area. We are now seeing many multiple contracts (as many as 20) on foreclosures and the prices in several cases have fallen to below the material cost of constructing the home itself and sometimes below the land value! (not in Dupont Circle though) Just as prices could not remain unsustainably high, they cannot remain unsustainably low either.
Buyers: you’ve missed the best time to buy which I think was last fall, yet now is still an AMAZING time to buy. My question to you is – what in the world are you waiting for?
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May 12th, 2009 at 8:23 pm
Maybe I’m missing something, how is it that the time to buy has passed especially since you are saying there will be more waves of foreclosures. Won’t that dilute the market further and drive prices down? Thanks.
May 13th, 2009 at 12:12 pm
Thank you for your response. I welcome the dialog. I don’t think the time to buy has past, I think the BEST time to buy has past. There are still many deals available and will be for quite some time.
You’re right; it is possible that a dramatic increase in foreclosures will push prices down further. It is also possible the demand has increased enough to move through the inventory fast enough to prevent further decline in prices. I suspect it is the later, especially closer to the core of DC. I draw the conclusion based on the fact we are seeing 5-15 contracts on nearly every foreclosure listings. Demand has clearly exceeded the current supply of REO properties on the market.
It will be interesting to see how this progresses… Call me anytime to discuss further.
May 13th, 2009 at 7:57 pm
Interesting, thanks for the feedback. I agree with you that everything will depend on the amount of foreclosures that will hit the market in the next couple of months.
December 13th, 2009 at 9:16 pm
Generally I do not post on blogs, but I would like to say that this post really forced me to do so! really nice post,and very informative.