Just posted to AustinMarketInfo.com:
This is good information, and worthwhile for all of us to understand. As always, the contrast between the recession experience in Austin/Central Texas and the national news is important.
First, a quick comment on Myth #2: Yes, when you buy a bank foreclosure you get clear title, and the property is eligible for title insurance. The question of clear title is at the heart of the recent moratorium on foreclosures. Since mortgage portfolios were packaged and sold and resold over the past several years, there are some legitimate issues involved in verifying which lender or lenders have the legal right to foreclose, and therefore whether they actually have title that can be properly conveyed when the “bank-owned” property is sold. That’s the point of the recent slow-down — taking time to make sure i’s are dotted and t’s are crossed before a foreclosure is executed.
A quick footnote: The discussion above focuses on bank foreclosures. Tax seizures can differ. The legitimate buyer still acquires clear title, subject to the right of the previous owner (i.e., delinquent taxpayer) to redeem the property — up to two years in Texas.
Regarding Myth #3: We keep hearing about a “shadow inventory” of several million properties. The linked article rightly points out that lenders are pacing their foreclosure activities — seizures and resales — to prevent a flood of inventory that depresses home prices. These lenders have a direct interest in the highest home prices that the market will allow, and they know very well that dumping all of the potential foreclosures on the market at once is not in their best interests, nor in the longer term interest of general market health.
It also worth keeping in mind that the worst impact of the recession and housing crisis remains concentrated in five states — California, Nevada, Arizona, Florida, and Michigan, with some significant but localized issues in Ohio and Georgia. Indeed, 55% of all the foreclosures in the United States over that past year were in just 37 counties — and none of those counties are in Texas. Even within the relatively sheltered Texas market, the Austin area remains the strongest. We have seen more foreclosures than usual over the past couple of years, and there will be more than usual in the coming year or two, but their impact on home values has largely been concentrated in specific neighborhoods. Average sale prices in the Austin metro area were actually UP 4% in September 2010 compared to the previous year.
As for Myth #4: Local real estate is the ultimate competitive marketplace, with thousands of individual sellers represented by thousands of real estate agents or property owners competing for the attention of thousands of represented and unrepresented buyers. Even with some inventory build-up in the Austin area in recent months, supply and demand remain fairly well balanced in the metro area. These market conditions very effectively bring buyers and sellers together at the fair market value for any given property.
Are there bargains among foreclosures (and short sales)? Sure. There are also overpriced properties in this inventory. The same is true of all of our listing inventory. Recognize that in almost all cases, when a homeowner stops making mortgage payments they have already stopped spending money on property maintenance, and even basic care for cleanliness can go by the wayside when it becomes clear they the property will be foreclosed. The key is for a buyer to establish priorities for a home search: location, size, age, style, access to schools, employers, transportation, clubs, recreational facilities, how much renovation will be acceptable, etc., etc., etc. — and then to use the best information available to consider all homes that meet those needs.
A real estate professional has ready access to all inventory and should be happy to provide complete buyer consultation regarding price vs. value. This should apply when considering FSBO properties as well. Driving around collecting flyers from overpriced homes in a neighborhood can create a distorted view of what real values are in the area. Comprehensive analysis of current supply/demand conditions and recently closed sales are the only way to move confidently in buying a home.
Likewise, this same kind of consultation is vital for prospective home sellers. Competing with a strongly motivated seller with plenty of equity can be more challenging than having a foreclosure for sale across the street if the bank is determined to achieve an unrealistic price.
So … if it’s your time to buy or sell, don’t wait for some imaginary sea-change in the Central Texas real estate market. The outlook for home values and mortgage interest rates us UP, and we are not facing a flood of low-priced properties in the coming months. Make your move because it’s right for you, not because of external factors you read or hear about.