Realitico

The last couple of days brought renewed fears about the risk of double-dip recession in the U.S. and growing European budget crisis. More and more leaders express their concerns about weakening growth of both developed and rising economies. All this happens while very little tools have been left for the Federal Reserve Bank to implement in its efforts to induce businesses and consumers to invest and spend more. The last such effort (doubbed "Operation Twist") involves buying billions of dollars worth of long-term bonds. This should lead to reduced cost of borrowing both for businesses and consumers. It is widely expected that the "Operation Twist" should bring the interest on a 30-year conventional fixed rate mortgage below 4%. 

Most experts agree that lowering the cost of home mortgages will have only limited effect on the housing market. While employment situation remains uncertain, most of potencial homebuyers will probably postpone their decision to buy until the economy (and the job market) show more signs of recovery.

At this moment, the prevailing opinion is that both U.S. and world economy are on the verge of another recession. This opinion was confirmed by today's sharp declines on Wall Street where all the leading indicators lost more than 3% in a single session.

In the second week of May 2011, only 24 single family homes were either listed or re-listed in the northwest Chicago area MLS. It was 25% decrease in foreclosure activity compared to previous week. There were 9 new listings, 12 price reductions and 34 homes were re-listed after deals were cancelled. 

In the second week of February 2011, 40 single family homes were either listed or re-listed in the northwest Chicago area MLS. It was 25% increase in foreclosure activity compared to previous week. There were 12 new listings, 24 price reductions and 4 homes were re-listed after deals were cancelled. 

Times are tough, we all know that. Times are even tougher when it comes to selling a home. Huge inventory, cut-throat pricing, scarce buyers... Naturally some may think they can practically steal some of the least desirable homes around - bank owned/impenetrable/foreclosures. Not so fast... Yes, the number of bank owned homes is huge and will stay so for the foreseeable future. They are mostly in bad or very bad condition and corporate sellers would not (in most cases) pay for any repairs, even if required for the property to be appraised. Yes, cash is king but let's have some perspective here. Bank owned properties are listed at basement bargain prices to begin with. In many cases, even when all the repair/replacement costs are added, the price comes at 10% - 30% less than comparable, not distressed homes in the area.

    There are bank-owned properties that have been sitting on the market for 4, 6 or even 8 months and have never been under contract. Let's not assume the seller will take any cash offer. There are procedures to adhere to and guidelines to follow. The massive and impenetrable bureaucracy of corporate sellers has their own rules that may seem foolish and illogical to us, humans. Well, there is human logic and bank's logic. So if a house is in poor shape, has been on the market for 6 months and would never appraise, don't think you can get it at 50% off (the current list price). Not yet... Perhaps, after 2 or 3 more price reductions, you will get your deal of a century. In most cases, all what you can hope for, is a "mere" 30% off. Obviously, if there are no other buyers willing to bid on the same property...

    This has been my experience after dealing with bank owned properties in the northwest suburbs of Chicago in the last 3 years. Perhaps asset managers (as we call agents of corporate sellers) are more lenient in other areas. Or perhaps not. After all, if someone is ready to sell the property at 50% off, why not price it 30% or 40% lower? It is a good advise for all buyers, not only corporate ones...