State of Distressed Property Market – Same ol' Same ol'

As part of my ongoing commitment to serving my clients, I frequently attend seminars from the distressed property experts, like Alex Charfen, who created the Distressed Property Institute in Austin, Texas.

This week, Alex had a casual conversation with Rick Sharga, VP of Realtytrac. Realtytrac is generally regarded as the nation’s expert on foreclosures and their database of public record information tracks millions of properties in foreclosure throughout America.

According to this presentation, prices are still going down nationally. The bottom has pretty much fallen out of market. The market is likely to sawtooth up and down. National experts predict prices will probably be down 5%-7% for the year of 2011, nationally, according to RealtyTrac VP Rick Sharga. Right now, there is an opportunity to buy now and make money. Home sales are still basically too weak to absorb the foreclosure inventory.

Last year, 28% of the sales were distressed properties. Here on Kauai, and on the other neighbor islands (Maui and Big Island), that number is 35% and higher. What I’m saying is that out of all the real estate transactions in 2010 on Kauai, 35% were either short sales or bank-owned (REO) properties. In a normal market, this number would be around 5%. Even the banks are spooked now.

Volume of home sales too weak to keep pace with foreclosure inventories

One statistic Rick Sharga presented was quite unusual. Only 18% of the people in foreclosure seek an agent. People are under a lot of stress, they go into hiding. People are not well educated enough.

Sharga made a comment that Freddie Mac said, “5 years ago, 67% of their homeowners in foreclosure did not know they had another option, and now, after three plus years of distressed market, foreclosure, national media, and press galore, 60% of Freddie Mac’s customers don’t know there are options to avoid foreclosure.” People abandon the homes in the middle of the night because they do not know what to do. That is simply amazing to me.

As a country, we need the volume of distressed sales to increase, so we can deplete the distressed inventory. We may never have deflated prices and low interest rates again like this in our lifetime. Rental properties are a good investment.

Another topic covered on the webinar were luxury homes. Luxury component of the distressed market is still increasing. 700% increase in foreclosures in 90210, that’s Beverly Hills, by the way. Banks have been slow to foreclosure on luxury properties, but when they do, they liquidate at fire sale prices. Between investors and second homebuyers, 40% of the purchases nationally.

Overall, buying activity has fallen off the cliff, while investor purchasing has increased and investors represent a larger piece of the pie. When you see large hedge funds buying real estate, buying single family homes, they are buying for cap rate and appreciation. This is happening now at an increasing pace.

If you are in a position to place some of your assets into real estate, now is an extraordinarily unique time. Whatever your price range, I can help you find where the finest values are. I’ll be updating my website soon, so you can search all the RealtyTrac foreclosures there.

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