Back in February, we posted a blog (seen below) explaining that there would be a 'window of opportunity' for sellers to sell at a better price than they could after some distressed properties entered the market this summer. The concept was correct as prices have stabilized and, in some markets, are actually showing mild appreciation.
However, we underestimated the time it would take for the banks to work through the processes that would bring this distressed inventory to market. We are now extending this window of opportunity through the rest of this year as we believe foreclosures and short sales will increase more dramatically as we begin 2013.
We have changed our timeline based on reports such as this one mentioned in a recent Wall Street Journal article:
"Nationally, Barclays estimates that the number of bank-owned properties will decline a bit more this year, before accelerating next year to a peak of around 575,000 in early 2014."
House Prices: Window of Opportunity Beginning to Close
There have been conflicting opinions as to where housing prices are headed. We want to give our opinion on this subject for the short term. We believe sellers have a window of opportunity for the next 90-120 days in most parts of the country in which to sell their homes for maximum price. We believe there will be increased downward pressure on home prices throughout the rest of the year.
Why renewed downward pressure?
Any item’s price is determined by ‘supply and demand’. In many parts of the country, existing housing inventory has dropped to historic norms in the last few months. However, an inventory of distressed properties (foreclosures and short sales) will be coming to market this year. This inventory has been delayed for over a year as the Federal and state governments crafted an agreement with the five largest banks and mortgage servicers to establish a roadmap for how a foreclosure must be properly completed. That agreement, the National Mortgage Settlement, was reached two weeks ago.
What Impact Will the Agreement Have on Foreclosures?
Brandon Moore, chief executive of RealtyTrac, explains:
“The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year.”
How Many Foreclosures Could We Be Talking About?
Mark Vitner, a senior economist at Wells Fargo Securities tells us:
“The settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled.”
What will this mean to home prices?
As this inventory comes to market, it will impact prices in two ways:
- It will bring to market discounted competition for buyers
- It will impact the appraisal values of all homes in the area
Which States Will Be Impacted the Most?
The states that have the largest backlog of properties currently in the foreclosure process will be the states that will see the greatest price depreciation.
There is a window of opportunity currently which sellers should take advantage of. Waiting until later this year will not guarantee a higher sales price. If anything, in many regions of the country, it probably guarantees the exact opposite.