In many markets, if you want to buy a repossessed property, you better come with your best offer first and fast. REOs, the industry term for homes repossessed by lenders and put back on the market, are often selling in a day or two. "For every listing that comes out, we have 10 buyers," said one agent. San Diego buyers face the same trend. Agents have one or two REO listings now, compared with 15 or 20 a year ago. And there's almost no negotiating, no back-and-forth, after the initial bid.
Many realtors observed, "We don't get a counteroffer. The sellers just ask for your highest and best bid. If you're not prepared to send in your best bid the first day, you may as well stop looking." This kind of cut-rate pricing is very common. Instead of holding onto REOs for the best prices and paying the property taxes and maintenance and heating costs*banks are selling the homes as quickly as possible. In this market, if they can liquidate them fast, it makes more sense to get them off the books.
The hot spots for this fast-paced foreclosure activity are in the former bubble markets where foreclosures soared in California cities like Sacramento, Riverside and San Bernardino. On average, inventories of California homes under $300,000, the most popular price point for foreclosure buyers, have shrunk drastically, from a nearly 10-month supply a year ago to less than three and a half-month supply today, according to the California Association of Realtors. Between June 2008 and June 2009, the number of bank-owned properties diminished by 26%, nationally.
The industry attributes the drop in inventories to foreclosure prevention efforts by the current administration and various state governments. In particular, they cite moratorium programs that, at the very least, postponed foreclosures. The bad news is that as the moratoriums lapse, more REOs will likely hit the market. That's because these efforts tend to delay foreclosure rather than stop it. With Option ARM loans recasting between now and 2011, there's every indication that a tsunami of new properties will be coming to the market later this fall.
Another source of foreclosures are re-defaults on previously modified home loans, especially if the economy doesn't perk up soon. In fact, last year the U.S. Comptroller of the Currency found that 53% of loans that were modified in the first half of 2008 fell back into arrears.
BUT, THERE'S A FRESH BATCH EVERY MONTH
In July, there were more than 360,000 properties with foreclosure filings including default notices, scheduled auctions and bank repossessions' an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. The jump occurred as several foreclosure moratoriums phased out. They were initiated by many states to give the administration's foreclosure-prevention efforts time to work. But for many help did not come: The modification and refinancing programs have met with less success than hoped.
RealtyTrac cited the two primary reasons as being due to option ARM resets, triggering defaults and more prime loans, which are failing due to job losses. The worst hit areas continue to be in the "sand states", with California posting the highest number of total filings 108,104, and Nevada posting the highest rate of foreclosure at one for every 56 homes. The other hardest hit states are Arizona, at one filing for every 135 homes, and Florida, at one for every 154. Las Vegas, with one for every 47 homes, had the highest rate among metro areas. That's Sin City's 31st consecutive month topping the list. These were bubble states, where home prices soared and banks financed mortgages for anyone who could fog a mirror. The firm stated the highest levels of foreclosures were in the markets that had the highest appreciation [during the boom] and the worst lending practices.
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