Looking for a foreclosure discount

Over the last year and a half, some have talked about an impending foreclosure apocalypse.  Home price run up aside, some home buyers have decided to wait for foreclosure inventory to hit the market to get a property at a foreclosure discount.  

foreclosure discount
Homebuyers have opportunities

Although some expect something akin to 2007-2008 foreclosure crisis, they may be disappointed.  Experts don’t expect a repeat of the last foreclosure crisis for a number of reasons, including the fact that home equity positions of homeowners are much different today than they were the last time.  Additionally, although home sale prices may be moderating, it’s expected that future home price appreciation is still be positive. 

Let’s take a look at foreclosure data compiled by Attom Data. The July 22nd press release (Top 10 U.S. Counties with Highest Foreclosure Rates in June 2022; attomdata.com)  indicates that, “there were a total of 90,139 U.S. properties with foreclosure filings in Q2 2022. That figure was up 15 percent from the previous quarter and up 165 percent from a year ago. The report noted that national foreclosure activity total in Q2 2022 was 68 percent below the pre-recession average of 278,912 per quarter from Q1 2006 to Q3 2007 – making Q2 2022 the 23rd consecutive quarter with foreclosure activity below the pre-recession average.”

So basically, foreclosures have increased. However, the number of foreclosures is nowhere near the amount prior to the great recession.  Even though the number of foreclosures will likely not impact the overall housing market, there are buyers looking for the foreclosure discount. 

If you’re looking for a foreclosure discount, read the recent research by Ralph B. Siebert published in the Journal of Real Estate Research (2022, Vol. 44 Issue 1, p1-28).  The study revealed where deeper discounts may be found when buying a foreclosed property.  Siebert’s analysis indicated that discounted foreclosed property depends on the metro and/or regional housing market where the house is located, as well as the home’s value position relative to the market segment. 

Siebert’s study included transactions in Florida and Indiana from 2000 to 2020.  His results indicated that foreclosure discounts were higher in Indiana than Florida.  Also, Indiana foreclosed homes in the lesser value segment lost the most value, whereas similar value segments of foreclosed homes in Florida did not lose as much.  He also found other differences that resulted in higher discounts as well. 

If you’re looking for foreclose discounts, consider the comparing market locations and value segments.  Buyer beware, however, it’s likely that the home will likely need repair and/or renovation.  So, although the acquisition of the property may be at a discount, the cost of bringing it up to your standard may be costly.  Do due-diligence, and consult with licensed real estate professionals to assist in making home buying decisions.

By Dan Krell
Copyright © 2022

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

The thorough home inspection

Back in 2005, one of the first columns I wrote for the Montgomery County Sentinel was about getting a thorough home inspection.  The market was similar to the recent sellers’ market, where homes sold in hours after receiving multiple offers.  Home buyers were making non-contingent offers, foregoing a home inspection, and many times offering incentives to the seller (such as free rent back, cars, vacations, etc).  The point then, as it is now, is that inspections are important and helpful.

home inspection
Home improvements

Of course, the last year-and-a-half has been just as brutal to home buyers. Many buyers paid way over the list price.  And of course, many also had to forego an inspection just to be in the running with the competition. 

Although home sales have waned recently, it is likely that sales will rebound in the fall.  That said, the recent mini cycle allowed buyers and sellers to take a breather to figure out where the market is headed.  As an increasing number of homes are for sale, the market will become be more balanced.  A balanced market allows for mutual negotiation, including having a thorough home inspection.

It’s undeniable that home buyers have high expectations during the buying process.  And that includes the home inspection.  Buyers expect a thorough and exhaustive inspection.  They rely on the inspector to identify concealed and latent defects. Basically, buyers expect the inspection to help determine the condition of the home and its systems/components before they move forward with the purchase. 

Even though home buyers view the inspector as all-knowing, home inspections are not infallible.  Home inspectors are limited in their inspections and can miss items and/or make mistakes.  Additionally, according to the state’s home inspector state licensing, a home inspection is “not technically exhaustive,” and it may not identify a concealed condition or a latent defect.

Home inspections are for all types of homes.  Besides resale homes, inspections also are for new and recently renovated homes.  It is not uncommon to discover incomplete installation of a system in new or renovated homes. 

Overall, there is still a benefit of conducting a thorough home inspection. However, home buyers need to understand the limitations of their inspection.  They should also attend their inspection ready to take notes and ask questions. 

By Dan Krell
Copyright © 2022

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Get a mortgage preapproval

Many years ago, the home buying process was very different than it is today.  For example, home buyers relied on their real estate agents to qualify them to figure out how much home they could afford, instead of getting a mortgage preapproval.  Making an offer on a house was done without a mortgage preapproval letter.  And the mortgage application was usually made after the contract was ratified.  The process may seem backwards by today’s standards, but that’s how it was done. 

real estate mortgage preapproval
Real estate is voted as best investment

The problem with the old process was that sometimes the loan was denied, causing heartache and anguish for the homebuyer and seller. Times have changed.  In today’s market, homebuyers are expected to be more organized, which helps streamline the homebuying process. The includes getting a mortgage preapproval letter.

You may have heard it called a prequalification or a preapproval, the purpose is the same.  The preapproval letter not only qualifies you, but also gives the home seller confidence that you can complete the sale.

To preapprove you, your lender checks your credit and reviews your financial documents.  This will give the lender an idea of what loan program is best for you, as well as calculating your debt-to-income ratio to determine your maximum loan amount.

Your preapproval gives you a head start on the home buying process.  When the lender reviews your credit and finances, they can see if there are any obstacles to getting your loan.  The lender can help structure your loan in advance, which will guide you in your preparations.  Additionally, the preapproval letter will show your agent and sellers that you’re a serious buyer because you’ve already started the mortgage process.

Don’t feel pressured to work with any lender, even if they are affiliated with your agent.  As a homebuyer, you have right to choose the lender you want.  Some buyers will go where they bank for a mortgage, because there is a mutual familiarity.  Some look for the best interest rate, and others look for personal service.  It can help to understand the lender better by comparing several by talking to a local loan officer.  The bottom line, however, is to make sure the lender is licensed and is knowledgeable of the jurisdiction where you are buying.

By Dan Krell
Copyright © 2022

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Local housing market changing

Lately, the housing market is definitely making noise and grabbing everyone’s attention, and not in a good way.  However, we won’t actually know how it plays out until it’s over.  As the idiom says “hindsight is 20/20.”   Nevertheless, if you’re currently in the market to sell or buy a home, pay attention to current local housing market conditions as they are critical to your decision making.

Here we go…

Changing housing market
More home are being listed for sale

The S&P CoreLogic Case-Shiller Home Price Index (spglobal.com) reported in a June 28 press release that average April 2022 home prices increased 20.4 percent from April 2021.  Tampa, Miami, and Phoenix led metro areas with 35.8 percent, 33.3 percent and 31.3 percent gains respectively.

We won’t really know if rising interest rates have any effect on home prices for several months.  Home pricing and sales data is reported in hindsight (data is reported three to four months behind).  The Case-Shiller release points out that mortgage rates just began to increase when these stats were being compiled (April).  However, the recent S&P CoreLogic Case-Shiller Home Price Index is already showing home price moderation (even before rising mortgage rates).  The Year-to Date S&P CoreLogic Case-Shiller Home Price Index for the US only shows an increase of 7.95 percent, while the 3-month index increased 6.66 percent and 1-month only increased 2.08 percent

Rising mortgage interest rates is only part of the economic story that is developing.  It was likely that home prices were already moderating as a reaction to the year and a half of sharp increases.  As I wrote last week, we are in the beginning of the shifting housing cycle.  Mixing in other economic factors, such as mortgage rates etc., can either make the housing market more sever or temperate.  And as I mentioned, we won’t know for sure until it has happened.

Bottom line

If you’re currently in the market to buy and/or sell a home, focus on the short-term local trends.  Speculation of future national home prices and home sales may be interesting, however is meaningless in the here and now.  You should hire a seasoned professional to help understand your neighborhood’s trend, as well as being informed about your potential competition and the local housing market inventory. 

If you’re buying a home, work with a seasoned real estate agent who can provide valid comps and analysis before you make an offer.  Also, consider having a thorough home inspection.  In the last year and half, home buyers felt forced to forgo the inspection to make their offer competitive.  However, in the changing market, home inspections will return.

If you’re selling a home, be aware that home pricing strategies that were lucrative last year won’t work to your advantage this year.  It’s nice to think that your home could sell for a peak price much like other neighborhood homes that sold twelve to twenty-four months ago.  However, in a changing market, overpricing your home sale could be counterproductive, driving potential home buyers to competing homes.

By Dan Krell
Copyright © 2022

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Housing Market Pause, Slowdown, or Collapse?

housing market
Work with a seasoned professional to help navigate the local market

Is the housing market in a pause, going into a slowdown, or worse – headed for a collapse?  Looking back to an article I wrote an article in the summer of 2018 asking the same question, we were at a similar point then and asking the same questions. Just like today, the summer of 2018 saw decreasing home sales after a sellers’ and sharply rising home sale prices.  Instead of being in full swing, the housing market of the summer of 2018 was cooling down. 

During that time, it was common place to hear about the impending doom and gloom in a housing collapse from the media.   In hindsight, what occurred that summer was a normal reaction to an overheated market where stressed home buyers basically took a break. Even with the short pause, the housing remained an active and viable aspect of the US economy. 

Housing, like other facets of the economy, go through cycles of boom and bust.  Most are familiar with the extreme boom and bust cycles, such as what occurred during 2005-2007.  However, many are unfamiliar with the concept of the mini-cycle.  The mini cycle is a period of short-term growth and slowdown, modulating to maintain a relative balance. Instead going through a protracted cycle of expansion, hyper-supply, and recession, the housing market could be correcting itself via mini cycles

Prior to the lockdowns of 2020, the housing market was in the process of correcting itself from sharp home price increases during a hot 2017-2018 market.  At that time, home sale inventory was already at historic lows (which began in 2013).  As you can understand, the lockdowns further exacerbated the home sale inventory shortage and pushing the housing market and home buyers into an unprecedented situation.  The double-digit multiple offers and six-figure escalations pushed home buyers to the edge, exhausting and discouraging many.

After a year and a half of sensational activity and home price gains, it’s not unthinkable that home sales would correct itself.  As reported in the June 21st National Association of Realtors press release (https://www.nar.realtor/newsroom/existing-home-sales-fell-3-4-in-may-median-sales-price-surpasses-400000-for-the-first-time), May 2022 home sales decreased 3.4 percent from April, and decreased 8.6 percent from May 2021.  Home sale inventory continues to increase, and was reported to be about 2.6 months of supply, which gives home buyers more opportunities.

Home prices, on the other hand, continue to increase.  As reported in the NAR press release, median home prices are 14.8 percent higher than a year ago! The $407,600 median home sale price is the first time the median sale price exceeded $400,000. 

Of course, housing is also affected by outside economic factors, which are concerning to everyone.  If you are in the market to buy or sell a home, look at the facts and make decisions that make sense for your situation. Finally, work with a seasoned professional to assist you to understand and navigate your local market.

By Dan Krell
Copyright © 2022

Protected by Copyscape Web Plagiarism Detector

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.