I have been hearing that banks are sitting on tons of foreclosed properties and that the wave of foreclosures to hit the market in 2010 will be even

Asked by CK, Atlanta, GA Tue Dec 22, 2009

more than the number of foreclosures to hit the market in 2009. Is this true?

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Hank Miller, Agent, Alpharetta, GA
Wed Dec 23, 2009
BEST ANSWER
I do Fannie Mae appraisal work and get all I want and more - there are a ton of properties in the system and they tell us to expect a tsunami. The banks are holding homes and I thing the Fed plays a part in that, this is an effort to stablize the market. AsAtlanta gets a little traction and we look to a critical spring, banks will be easing the load to keep prices stable. This encourages buying and allows them to maximize the amount they can get.

I've heard it enough from different industry sources to put some credence into it.

Hank
2 votes
Hank Miller, Agent, Alpharetta, GA
Sun Dec 27, 2009
I'd go really really slow when looking at any national or even state data. Dan pointed out a few to check out, but as far as volume and prices, everything is local and in many area (like Atlanta) even "sub local/market". There is just no way that national or even state reports can accurately reflect conditions down to the area - and I think that's part of the problem feeding and continuing this slump. We're developing a society of "waa waa's" - assign blame, defect and expect someone to bail you out. With as much time as I spend in the field, in the data, with firms like Fannie and Freddie.....I see few folks that have been caught by this economy through no falult of their own. The vast majority are crying while an 80K car is in the garage, pictures from a worldwide vacation hang on the wall or they walk around cosmetically enhanced in $$$ clothes...in homes they never could afford. That great that you used your home as an ATM - now it's time to pay. I feel bad only for the folks trying every day to keep things going in a poor economy, those folks are the victims here, not the irresponsible ones. I digress......

Consider an example -

At this moment I have four clients sitting on the Walton school district in Cobb County. They are in the 600K-2M category and all want homes with basements, good settings and with minimal work to do. Two are willing to look at other areas close to the NW part of Atlanta where they work if the home meets this general criteria.

We keep looking for all of them - right now two have been going for five months. Quality homes pop up and mine and many other buyers hit them - the well presented homes are selling in a reasonable amount of time for good SP/LP ratios. There are very few "distressed homes", the owners or banks unwilling to cut and deal for the most part because of the area rep. In fact, data shows that while marketing times will be extended, they will sell because someone will buy because of location and scarcity - keys to value. This area has seen a 2-5% increase over the last 4 years.

Now look in areas on Atlanta, out in West Cobb, north into Forsyth County.......toally different but yet under the "Atlanta" bubble data-wise. parts of Atlanta (sorry Lee) are like a movie set - shells and store fronts. You can buy city blocks for nothing, but these areas have a demonstrated inability to gain genuine traction (especially with the usual fraud, straw buyers, reverse mortgages and all the other scams). In fact, appraising anything in some areas is virtually impossible as comps transfer multiple times in short periods for clearly bogus prices. Out in the burbs, developers kept going like buyers were never going to stop. Like other areas outside the city there are ghost developments and developments of white PVC sewer taps - all rolled into the Atlanta data.

The point is simple and one we all know - all real estate is local so the idea of using a site to ascertain trends can be misleading. I realize "everyone does it" but I think it's up to us to remind folks to focus locally as much as possible. I get calls and questions from probably 20-30 folks a month asking "how's the market in my area" and in 15 minutes they see specific charts, sales and listing data, transfer reports, square footage data....whatever they want focused on their area and price point. I have excellent data as an appraiser (the same any agent can subscribe to) and I refrain from the realtor talking points - it's funny how when you lay things out as they are, people respect that even if they don't agree with it.

There are many areas of "Atlanta" that have bumped slightly, are holding their own and are coming out of the funk, it's not all doom and gloom. This isn't the norm, but it's innacurate to say it's all bad - and I can give you plenty of clients who have learned this. I stroked a blog about the impact of foreclosures and the myriad of other economic disasters we have to digest for anyone interested - http://www.trulia.com/blog/hank_miller_-_associate_broker/20…

Hank
3 votes
Lee Taylor, Agent, Decatur, GA
Sat Jan 2, 2010
Hank and dan get thumbs up - Dan, thanks for the links.

Hank - thanks for doing what you do, spewing what you spew and thanks for pointing out the strengths and weaknesesses that can only be assessed at the hyperlocal level.

Hank, you are correct about some of the graphic "defeat" that we see in some intown Atlanta neighborhoods, however, neighborhoods like Adair Park, or Lakewood, or even Vine City have good neighbors, who retrench and defend their turf as best as they can.

Does everyone remember "mortgage fraud?" Fraud is much more difficult to do nowadays, but the neighborhoods that I just mentioned, and others like them, began hurting 5-7 years ago, when massive disinvestments happened.

Criminal cash outs.

So, 2009 was a year of improvement for some streets, and some buyers have purchased properties with cash and 203K FHA loans that make them true investors in these communities.

Other streets, not so much. What this means for buyers is that purchases are available for 80% off of sales prices from 3-5 years ago in some neighborhoods - close in, convenient, neighborhoods and in many cases, classic, well-built houses.

If you go to Buckhead Forest, Ansley Park, Morningside, Virginia Highland, Druid Hills and the city limits of Decatur, houses will not sell for anything less than $250,000. Prices have fallen, but not by 80%.

All of this upheaval is a tremendous opportunity for buyers, and in the next few months, Sellers who must sell will sell.

Buyers will take advantage of the best purchase market in history...and then, we can expect some more difficulty for the snivelling, nouveau riche, unbridled spenders like Hank describes who just will not "get it" until the authorities come and take their stuff.

The season is now for short sales, value purchases and super favorable loan terms for all buyers at all price points - more inventory is coming, and rates will go up. Demand will spike, and only the strongest will survive what happens after this next spike.

It's gonna be a tough decade for many people, and the window of time available to the most nimble, the smartest and the savviest real estate purchasers is going to close when government retrenches and banks reprioritize.

Supply will exceed demand for a long time, but in areas where the fundamentals are sound, like the Walton HSD that Hank describes, demand will remain strong. Conservative, practical and hard working folks will always have money and there will always be great houses selling at fair prices.

That doesn't mean that a conservative, practical and hard working investor can't develop a sound rental portfolio in Bouldercrest Acres or Oakland City...
2 votes
Dan Chase, Home Buyer, Texas City, TX
Sat Dec 26, 2009
I believe that is true. Many others do also.
Look at the link below. A similar question was asked there.
http://www.trulia.com/voices/Home_Buying/Do_you_think_prices…

FINALLY!!!
A real estate housing forecast site for the whole nation. (keep in mind forecasts are not always accurate)
http://www.housingpredictor.com/better.html (click on georgia in the left hand column)

Below shows a graph of loan resets that will lead to foreclosures.
http://docs.Steven-Anthony.com/Resets.pdf (shows loan reset schedule)
http://docs.Steven-Anthony.com/OptionArmResets.pdf (shows accelerated loan reset schedule)
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

All 3 are from Steve Ornella's blog at
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

The above blog is a HIGHLY recommended read for anyone wanting to know more about this foreclosure crisis.
2 votes
Lee Taylor, Agent, Decatur, GA
Thu Dec 24, 2009
Yeah, Josh - what do you mean? Drinking too much egg nog at an early happy hour?

I get the RSS feed for Calculated Risk and about 15 other economics blogs and their 12/17 post is included in the web reference.

The term "shadow inventory' is becoming as much of a catch all term as "zombie neighborhoods."

All real estate is local, so find a realtor who knows what they are doing in the area that you have a vested interest in - the rest is way too macro to worry about...

"The term "shadow inventory" is used in different ways. I consider all of the following to be "shadow inventory":

# REOs. There are bank owned properties that have not been put on the market yet.

# Foreclosures in process and seriously delinquent loans (although some of these may be in the modification process).

# New high rise condos. These properties are not included in the new home inventory report from the Census Bureau, and do not show up anywhere unless they are listed.

# Homeowners waiting for a better market. These are homeowners waiting for better market conditions to sell."

So, you see what I mean? Each submarket will have different "shadow inventories" that impact consumer perception...

Just wait until 2011 and 2012 when about 15-20% of the FHA loans with downpayment assistance and other nifty grants written for flimsy buyers in 2009 go sour...

if you are a buyer, just don't wait until 2023 - that's when my prognosticators are calling for a balanced market again...
2 votes
Brittany Ovb…, , Alpharetta, GA
Wed Dec 23, 2009
CK,
Yes, the banks are currently sitting on foreclosed properties that haven't been released into the market. This is called "shadow inventory", and a recent report by Amherst Security estimates the total homes both delinquent and in foreclosure to be around 7 million. There are several reasons why this is happening right now.

First, the banks who received TARP funds are being pressured by the Administration to do everything possible before they foreclose. The HAMP program was designed to give borrowers behind in payments an opportunity for a loan modification, or some other alternative to foreclosure, such as a short sale or deed in lieu of foreclosure.

Also, they are not releasing these foreclosed properties because they don't want to show huge losses right now.

Finally, the market has somewhat stabilized across the country and we are actually seeing some price increases instead of huge declines. The banks don't want to release all of these homes into the market and cause prices to tumble again.

What I've heard is that the momentum will shift in January (meaning we will start seeing more foreclosure hit the market) and by April there should be another large increase of inventory. Whether that is true or not remains to be seen.

Brittany Ovbey
RE/Max Greater Atlanta
2 votes
The Lewis Sa…, Agent, Grayson, GA
Mon Dec 28, 2009
CK,

Yes this is probably true. I just finished my CDPE ( Certified Distress Property Expert) course and the instructor was talking about how many subprime and adjustable rate mortgages are still out there. Most of these will adjust from 2010 to mid year 2011. The number of bad loans still out there are staggering. Most of the banks are getting smarter though. They are urging delinquent homeowners to persue a short sale rather than foreclosing. Only time will tell how this will affect the Atlanta real estate market.
Web Reference:  http://www.saffordsells.com
1 vote
Bill Eckler, Agent, Venice, FL
Sat Dec 26, 2009
Listen to Hank....

There IS more on the way.........

He's on the mark with his theory about the Fed's position of stabalizing the market prior to the next wave of foreclosures. Only time will tell the effect this will have on the RE market and economy but don't expect it to be a warm and fuzzy experience.
1 vote
Karen Colbert, , Sandy Springs, GA
Wed Dec 23, 2009
We at Keller Williams pay a satiation to follow the market plus I have met with asset managers so I feel I ca speak with some authority. Yes there is a large amount of shadow inventory that is 90 days late which means they can begin the foreclosure process. However, as per my recent discussions with HUD representatives lenders are about to create a new type of short sale process which will be easier and a way to forestall foreclosure. I am working on my Affordable housing certification to be able to better access these properties.. As part of my certification I need to do community service. If you know of a Church that needs a speaker let me know.
Karenthecoach@bellsouth.net
http://www.lifechangerealestate.com
1 vote
Julie Britta…, Agent, Dunwoody, GA
Wed Dec 23, 2009
Hey CK,

I've heard the same about the next wave. However, I hear the next wave will be higher priced homes - $500k+. I have not heard of banks "sitting" on foreclosures. They don't want them. So that wouldn't make since.

Julie Brittain
JEZEBEL Magazine “Realtor of Distinction” 2006 & 2009
Top 5 Individual Residential Agent 2001, 2002, 2003, 2007, 2008 & 2009
Top 5% of Keller Williams Realty Agents Nationwide Since 1999
#1 Team 2004 - 2005, #1 Individual Agent 2001 – 2003
Keller Williams Realty First Atlanta
Mobile: 404.966.3328

http://www.TeamBrittain.com
1 vote
Michael Ford, Agent,
Tue Jan 5, 2010
most likely true. while it's important to differentiate between foreclosures and short sales, they are two sides of the same coin.

if no one else will say, it i will...

DO NOT USE ANY NUMBERS TROTTED OUT BY THE N.A.R.
DO NOT USE ANY NUMBERS THAT ARE NOT PURELY LOCAL
DO NOT USE ANY NUMBERS THAT DO NOT DIFFERENTIATE BETWEEN PRICE LEVELS

national numbers are great for conversation but using macro numbers for micro buy and sell decisions is retarded.

i have a buy signal on for my sophisticated investor types...everyone else gets the caution signal. the sheer number of defaults going ahead is going to be massive. whether those get to the courthouse steps or not is immaterial..they will hammer nearly all 'hoods as the sellers dump them.

most significantly we have a "double-up chubby" coming at us high and hard...actually it's a triple up chubby...ARM adjustments, strategic defaults and more traditional defaults for the typical reasons of job loss and such. it will be truly ugly. ugly as a mud fence ugly

the higher priced 'hoods will bleed from the ears as the values are gone forever and the walk-aways get easier to justify...folks will make the businessmans' decision and sleep like babies.

be careful out there...lots of money will be made but i say it will be on the long term buy and hold...if you can get financing. the rents now cover expenses in most parts of the country. that makes an income property a genuine investment. how nice...a positive rate of return!
0 votes
Chris Yates, Agent, Atlanta, GA
Tue Jan 5, 2010
Not sure I can add to the pearls of wisdom from folks such as Hank and Lee - they are correct in that a tsunami is coming in 2010; and like Julie said, most could be in the above jumbo price. All indications from CDPE are that banks are holding back some of the inventory - which could be great for buyers with cash and patience. You have to be hyperfocused on a local level to really know the ins and outs of the foreclosure and short sale market so contact an expert on where you are looking to buy! The only question now is when are they coming? Best of luck and Happy New Year, CK!

Chris Yates
Keller Williams Realty First Atlanta
REALTOR, Consultant, ePRO, CDPE
chris.yates@kw.com
Twitter - @IntownATLRep
Web Reference:  http://www.intownrep.com
0 votes
Tonya Brobeck, , Everett, WA
Sat Dec 26, 2009
Wow Dan, thanks for posting this! Great information, I've been hearing these forecasts on the charts, nice to have a visual now.
0 votes
Hank Miller, Agent, Alpharetta, GA
Wed Dec 23, 2009
What do you mean Josh? Don't understand the post
0 votes
Joshua Zarga…, Other Pro, Lynbrook, NY
Wed Dec 23, 2009
Why not buy the bank and own all this properties...
I think not. It is a big problem that banks face. They have to pay taxes, insurance, maintenance etc.
That will cost then a lot of dollars.
I am sure that they want to get rid of such a problem.
0 votes
Joshua Zarga…, Other Pro, Lynbrook, NY
Wed Dec 23, 2009
Are you looking to buy some of this properties?
All you need to do is contact a pro who deals with this kind of properties.
There are good deals out there...
0 votes
Bob Dytko, , Tucson, AZ
Wed Dec 23, 2009
The banks are tired of losing money on the homes. They are holding back and creating a bottom to the market. Quarterly they release a certain amount of homes in the market that help stabilize the bottom price. The amount of homes put on the market may be different from city to city. Either way if a bank accepted part of the stimulus money has to follow at least the minimal requirements given from the government, this would fall in line with that agreement.
0 votes
The Hagley G…, Agent, Pleasanton, CA
Tue Dec 22, 2009
We've been hearing this for quite a while...and Realtors who sell foreclosed properties for the bank keep being told that the forecosures will hit "next month." That's been going on for at least 6 months.

I'll believe it when I see it!
0 votes
Tonya Brobeck, , Everett, WA
Tue Dec 22, 2009
That's interesting...I heard in the next 6 months we will have another big wave of foreclosures due to option arm loans resetting. I know our industry has been actively dealing with tons of foreclosure properties however I haven't heard of the banks of sitting on properties. From what I can see around here the banks have been listing these properties left & right and creating an auction on the live market
0 votes
Jeff K, Home Buyer, Bristol, PA
Tue Dec 22, 2009
According to the radio the other day, we've maintained at over 300,000 foreclosures for 9 months straight now. We'll see how bad it gets next year, month over month ...
0 votes
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