Friday, March 27, 2009

Home prices bottom out, for now....

Well after a two year free fall, home prices in some neighborhoods are finally starting to find a bottom. As values have plummeted to below $10,000 in many areas, competition between overseas, out of state and local buyers is causing multiple offer situations and actually pushing up sale prices. It is becoming the norm for multiple offers on almost every new listing, with some buyers paying almost double the initial list price.

The cause of this is easy to explain. First, many lenders including Fannie Mae, Freddie Mac and eight of the major banks have been on a foreclosure moratorium since Nov. 1st of 2008. This has reduced inventory levels by as much a 50% in some areas. This decline in the total number of listings, coupled with a major increase in cash purchasing from out of state and overseas buyers, along with increasing local buyer activity has created a bottom for many different areas in Southeast, MI. Local buyers, who have really been absent from buying activity for the past 12 months, are finally recognizing the excellent values in the local marketplace.

Older listing inventory, much of which is often in very poor condition, and usually priced way over market, is floundering on the market. These homes frequently are suffering from days on the market exceeding 365 days. In order to sell this aged inventory, banks will need to basically donate these to non-profits, bulk them in packages at a major discount, or sell them for $1.00.

As 70% of last years foreclosures have still not yet hit the MLS, I expect when that when a fresh wave of foreclosures is finally released when the moratorium is lifted, values will again begin the march downward towards $1. Per releases by the MBA, 48% of all subprime mortgages are in default or foreclosure, and with the ALT A loans about to come due, a whole new wave of foreclosures is about to wash across the US landscape. Most ALT A loans are in higher value areas, and those areas have been under assault by drastic price declines, so as many as 75% of existing home owners in these areas are going to be severly under water. This will further exacerbate the foreclosure trend as they won't be able to refinance or sell win time.

And don't forget, commerical foreclosures are close behind, and they loans will be high dollar. Continued declines in consumer spending is forcing many retailers to shut their doors, pulling up stakes and abandoning strip malls and other commercial locations that were having hard times even before the market started to fall out.