Buying Distressed Property in 2007: The market is ripe for
bargain homes.
December 14, 2006
Within the past 10 years the bull market in real estate provided support for
prices that elevated them into the stratosphere, almost doubling the median
price of a single family home within a single decade. Bolstered by confidence
in the market, buyers bought, sold, and bought again, flipping properties for
quick gains they reinvested at higher prices.
Money poured out of the stock market – where the shock of the collapse of the
“dot-com” stocks had left people in places like California reeling from the
aftershocks – and into real estate. Then interest rates spiked, and now
California is one of the biggest foreclosure states in the nation.
Pre-foreclosure listings on Bargain Homes show, for instance, a four-bedroom
and two-bath residence within 40 minutes of San Francisco, for less than
$170,000 – and a three-bedroom with two baths for less than $160,000. But for
that kind of money – which is far less than the $550,000 California median
price for a single family home – you can buy a Bargain Homes listed foreclosure
right in the center of San Francisco. One example is a three-bedroom, two-bath
home recently listed for less than $195,000.
Inventories of houses with mortgages in default, full-blown foreclosures, and
REO property (that has been through foreclosure and is now listed by the lender
for sale through a Realtor) have grown so large that independent auctioneers
are being flooded with business. Dean Williams is an auctioneer and the CEO of
Williams & Williams Inc., a Tulsa-based auction company. He was recently quoted
in a news article saying that his business nearly doubled in 2006, and is
expected to double again in 2007. He attributes most of the increase to a
build-up of REO inventories, and a desire on behalf of lenders to move that
excess inventory by whatever means possible, in the shortest amount of time.
Instead of waiting for buyers to come to REO open houses or find their
foreclosed listings through a real estate agent, banks and mortgage companies
are hiring auction houses to liquidate the property to the highest bidder.
The inventory listed on Bargain Homes validates the expectations of Williams
with hard quantitative data. In the immediate Tulsa, OK area, for example,
there are more than 200 foreclosure and pre-foreclosure listings, including a
2-1 cottage for $42,900; another 2-1 for $54,000, and a 3-2 home for less than
$85,000. For those with an eye for more luxurious properties, Tulsa offers
Bargain Homes listings such as a 4-3 foreclosure on Richmond Avenue for
$269,900.
Phoenix has been making headlines for months as an up-and-coming investment
opportunity, and was just featured on the cover of a major financial magazine
as one of the best places to invest over the next two decades. But for the time
being prices there are still reeling from the 2006 real estate setback, and
there are plenty of listings to prove it. Within 25 miles of downtown Phoenix
there are more than 25,000 pre-foreclosures listed on Bargain Homes – that’s
more than 1,000 for each mile of radius – and there are 302 foreclosures. Right
in the middle of Phoenix is a four-bedroom, two-bath home for $108,000, which
represents more than a 50 percent discount compared to the national average for
homes that are much smaller than that. Rarely do investors find such deep price
discounts, especially in a city making international headlines as one of the
best places to buy for long-term capital gains.
Just outside Atlanta, GA, Bargain Homes shows a five-bedroom/one bath for
$19,000. With a monthly payment around a hundred bucks that leaves plenty of
room to budget for remodeling, if needed. In nearby Decatur there is a
one-bedroom home for $25,000 listed on Bargain Homes, and a typical 30-year
fixed mortgage at between five and six percent interest would cost only $142
from most lenders. That adds up to less than five dollars a day, to buy a home
in one of the most desirable regions of the USA.
What all these examples and various statistics indicate is that the USA is
poised for one of the most unusual and lucrative buying opportunities in
American history. And while many experts believe that it may only last through
the end of 2007, when the market may stabilize again to return to more
reasonable pricing, professional investors are not waiting around to see. With
foreclosure inventories offering an entire smorgasbord of property – and
interest rates still low enough to finance mortgages at great rates – buyers
are taking advantage now of discounted inventory ripe and ready for harvest.
The real estate they buy may be considered “distressed”, but those snapping it
up at these deep discounts are thoroughly delighted.