As you already know, the economy has been in the gutter, with banks failing, people losing their jobs and homes, companies going out of business, and many other horrible happenings. It has been said that this recession is almost as bad as the great depression of 1929.
Traditionally, growth in homes sales helps lead economies out of recessions. Did you ever stop to think about how many people make money from the sale of single home? Escrow companies, mortgage agents, title reps, termite inspectors, locksmiths, painters, flooring, furniture and appliance companies, real estate agents, home repair stores, contractors, and many others make money due to the sale of one home. When these people are paid, they take their money and spend it on various items including: groceries, entertainment, clothes, vacations and cars. Then the second group of people, who sold the first group of people goods and services, use their salaries or profits to buy things…this trickledown effect goes on and on and on.
Within the past 36 months, home prices have dropped as low as 40- 60% in some areas. Homes that were selling for mid 600’s are now selling at low to mid 300’s.
To get out of this recession, our country needs the economy to get moving and grow, this growth and movement forward is generated by money changing hands. When no one is buying the economy stays flat.
When buyers have several properties to choose from, home values tend to stay lower. When there is low inventory, prices rise. In August 05, we had almost a 25 month supply of properties on the market; this high supply and low demand resulted in lower prices.
We no longer have a glut of homes for sale, and demand for homes is rising. We currently have only a 2.2 month supply of homes for sale in our market. In areas where home prices dropped dramatically, we are seeing slight price increases.
Today, in the current market, many of the homes we sell are listed and almost instantly crowded with multiple offers. In some cases, it’s common to see anywhere from 5-25 offers on one property.
Homes for sale are receiving multiple offers due to buyers increasing confidence in the real estate market, notwithstanding the “threats” of a tsunami of listings.
The banks and government cannot afford to sell off a large number of REO’s right now. With consumer confidence up, and houses in the mid to low 400’s selling Southern California, a flood of REO’s would only cause the prices to drop again. The government and banks understand that high inventory with the same or less demand will equal lower prices.
How does the government control the banks? Do you remember all the hype from the trillion dollars in bailout money? The golden rule applies: he who has the gold makes the rules. So our government is urging the banks not to dump their inventories.
What’s going to happen to the inventory if it just sits there? Some of the REO’s are coming out on the market, but it’s by no means a tsunami. Some of the banks are renting foreclosed properties out since they see the market rising, they have decided to hold onto assets for a year or two and then sell at higher prices. Some of the banks are selling to large hedge funds which are buying huge blocks of properties which they are renting out. Their plans are to hold the properties for 3-5 years and then sell when prices are higher.
Clearly you’re beginning to see why a flood of REO’s just isn’t going to happen. Instead of tsunami,we might see a small swell. Now is absolutely the best time to buy. Waiting a year or even a few months more can cost a buyer tens of thousands of dollars. It’s in your best interest to encourage your buyers to make the decision to move forward today.
WHAT ARE YOUR THOUGHTS…TSUNAMI OR A SMALL SWELL?
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Awesome post Neil!! I am a lender here in Arizona and we are experiencing such a hard time in that we have a glut of applications and no contracts. It is quite frustrating. The part I have in mind is the following.. Although the reasons are practical, is this not considered artificial pricing? If so or not so, are we not at risk of inflating prices therefore putting the market at risk if the jobs stats don't meet up with the inventory?
Do you mind if I post this on my blogs (of course, referencing you)..
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Neil Schwartz Reply:
August 24th, 2009 at 5:49 PM
Ofcourse you can post this. By the way, what do you mean by artificial pricing?
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Hey Neil,
Between government intervention, loan modifications, and short-sales the REO's are not coming as people were suspecting. And believe me, I wish they were coming.
Now I'm also reading that lenders are fighting for the right to allow them to lease out their assets (for up to 5 years!)rather then have to sell them in the open market, thus allowing their assets to appreciate before selling them at huge losses. Just another hurdle that is standing in the way of allowing this market to correct itself.
Maybe short-sales are the ticket…I am also reading that the banks are trying to come up with a system to steamline the short sales making them quicker and more efficient.
Just my thoughts….
JR
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Neil Schwartz Reply:
August 24th, 2009 at 5:55 PM
The answer is, as the market is shfiting away from “REO's” and “shortsales” and back to “standard sales”. It's up to great Real Estate Agents in each market to polish their skills. We need to focus ourselves on working our past clients, door knocking, working expireds, and FSBO's. The agents who can adapt to the change the fastest, are going to be the agents who dominate the market for years to come.
Neil
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tedcanto Reply:
August 24th, 2009 at 6:03 PM
I have been saying this over 2 1/2 yrs ago.. I conduct seminars for REALTORS on a large scale (250+) and whenever I bring this up, the majority of the audience look at me like this type of thing is above them. It is incredible how our industry has become complacent. On the other side, the agents that have heeded my advice call me thanking me and are doing great. Hard work is the key and will be as we move forward.
By the way, if anyone is interested, I am bringing in ActiveRain to Phoenix, AZ on Sept. 2nd.
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Arturo Bugarin Reply:
May 21st, 2010 at 4:04 PM
I agree with you Neil 100%, when money is changing hands our economy prospers. Cutting taxes is never the answer; all that does is drain funds from schools, public safety, parks and recreation, etc. When everybody is working they buy cars, homes, vacations, etc; which is why I see this recovery as sustainable.
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I am not sure if I used the correct phrase.. I feel that by withholding the inventory, they are pressuring prices upward. In the event that employment doesn't catch up then we have a large inventory of homes that will fall flat if the spending isn't there. In a way, this is artificial (at least for now it is). We and they need to pray that the jobs market stabilizes.
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Neil…
I agree with you 100%…I've been zoning in on “regular sellers” for the last few months and am making a long term investment in myself to be ahead of the curve when the REO's/shorts fade away.
FYI…love your videos and energy. We share mutual friends in the business and they all speak highly of you.
JR
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Neil Schwartz Reply:
August 24th, 2009 at 6:38 PM
JR, will you be going to the Mike Ferry event this week in LA? If so, please introduce yourself to me.
Neil
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Hey Neil, great article. You are so right about the tsuami not coming. I have seen in an area of the inland empire 20 or so homes in the same 2 square mile readius sitting vacant or being rented by the banks. They are holding tight and releasing inventory very slowly.
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Well, the banking industry has always wanted to control real estate!
Remember when NAR had to have all individuals in the real estate industry
to send emails and call in protesting the banks from entering in the (oops, I mean controlling) the real estate industry? Now, here we are, and they ARE in control!!!
The banks were going to gain control one way or another…. the hand was dealt and it fell in their favor.
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I stongly disagree with this theory. I work directly with the banks and the assetmanagers and there is for sure another large wave of forclosures due to hit the market and very soon. True the government has been trying to prolong the invenitable but unfortunatlly it is only going to make matters worse. The inventory has been down and REOs are going into multiples the day they hit the market, but that is because no one wants to wait on the response from a short sale. With the deadlines approaching from the banks all the short sales you see on the market will soon be forclosed upon. Just sit back and wait the end is not here yet.
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Neil Schwartz Reply:
August 24th, 2009 at 11:11 PM
Lisa,
Like you, our company works closely with banks and asset managers…..
Our interpretation of the market differs, for all our sakes, I hope that my reading is correct,
A tsunami of REO's would not benefit anyone.
Neil
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Banks can't release a flood of REOS that will drop prices further as it as it will only create a vaccum of more foreclosures for themselves..I dont know what they will do with the flood( rewnt short sell hold) but prices can't go down much further for the banking industry's sake….
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I think there is a trend in the real estate community to “hope” for this to be the case. I have worked directly for HUD in the past, 5 years with Golden Feather, their asset manager across 14 states…so my view point, is somewhat tainted. I have seen first hand what happens whenever the government tries to control, anything…they make it worse. I cannot see how the banks, without having prior experience in handling this amount of assets, are going to cover the costs of property management, insurance, tax payments, and homeownership in general…because they “hope” doing so will allow their assets to re-appreciate it. What if they are wrong? Banks are not in the homeownership business. If it is true, that banks are holding banks their assets, especially at the governments request, I think they are potentially making a huge mistake, one that will make thigs worse. The market is the market, you cannot artificially try to control it. Those are my thoughts…as I said, my background is somewhat tainted being an ex-government guy. We'll see how it plays out. I love the article and the debate it generates. Thanks Neil…jb
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I agree with Jason. It may cost the banks more in keeping their assets than what they will recoup in a few years from now. I don't think the banks particularly want to be property managers. If the government gets involved with property management, then we are in trouble for sure. Kind of like the government getting involved in healthcare. Now that's a different topic.
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Neil, Much of what you say is occurring in Hawaii too.
Aloha,
Keahi
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Great comments and debate everyone, I love it…
You’re right, government should not be in the mix; however, the sad fact is that it is.
It is becoming clear to me that where agents generate their business from, effects their “take” on the market…
My impression is most agents rooting for the tsunami are in some manner invested in the REO side of the business.
My agents are being trained to take advantage of the market whether REO’s dry-up or the “tsunami” hits the market.
What we all must keep in mind is that Focus, Consistency and Commitment win the day
What skills are you working on today? How many contacts did you make? How many homes did you preview, and how intense are you working? How closely do you follow your schedule daily? Who is coaching you?
The answers to those questions will determine your short and long term success.
Our company is training our agents to excel in all types of markets.
Don't focus on HOPE, focus on ACTION.
Neil
Century21Masters.com
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I want to bring to your attention in all of this excellent comments and with a profound way of think that you are forgetting something. THE BANKS ARE THE INTERMEDIARIES. They are in between the investors and clients. You have to think as an investor. Either you invest in the long term or in short term. Guess who has the last decision-“Investors”-(the ones that hold the notes) the banks are passive, investors are active. Who wants to wait 3 to 5 years leasing homes.Investors? You have to be kidding me. They have to move the money faster than the light speed. REO's ARE COMING.
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Excellent and very Realistic! Iv been working with banks as an REO agent too and thats soooooo True we have had a lot of homes foreclose on but as the REO Agent we get assignments to offer the home back to the occupant…. In some cases on my short sales they have offered revise the foreclosre and offer the home to occupant at market value or reduced principle when the buyer walks at the 11th hour…. Great things are happening, My market areas is starting to see a lot of Real Sales hit the market! and its SOOOOO EXCITING!
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There are a few other people who share this theory/belief. One thing I find interesting is how do you define a “tsunami”? There are thousands upon thousands, if not millions of NODs that have yet to be foreclosed/released/assigned to agents that probably will be.
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There are a few other people who share this theory/belief. One thing I find interesting is how do you define a “tsunami”? There are thousands upon thousands, if not millions of NODs that have yet to be foreclosed/released/assigned to agents that probably will be.
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This is a very likely future for the real estate market. I personally do not anticipate seeing all the homes that will be foreclosed on in the near future reaching the open market in a great wave. Many will likely end up in the hands of investment groups who will hold them in one way or another and sell them in a controlled manner when lending has loosened up and prices have further stabilized. The best advice for agents is the same as it has always been. Keep working to be the natural choice people turn to when they think of buying or selling real estate.
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Neil Schwartz Reply:
August 27th, 2010 at 2:37 AM
It just wouldn’t make sense for them to release all these homes which would chaos in the marketplace. Agents need to continue prospecting for equity sells since there are many out there, you just need to find them.
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I believe the Asset Management Companies are the ones saying there’s a Tsunami of REO’s coming to have you sign up with their company promising agents REO’s. I get calls from these companies 3 or 4 times a week! They charge anywhere from $100 to $1000 to sign up with their company, there are also these REO Network companies promising you the same thing. All I can say is “AGENTS…don’t fall for it!”.
“That’s all I have to say about that”. ~Forrest Gump
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Neil Schwartz Reply:
August 27th, 2010 at 2:42 AM
That’s funny…. keep focusing on equity sellers, they’re out there!
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Neil, Seems like it was just a few days ago when home prices would never come down….and 5 years later and after a 50% decline/ correction on the market. Now we have another group predicting prices will continue to go down as expected REO”S will flood the market. I agreed that the ones prepared will do well in any market, I put a dent on my magic ball so I can’t predict or see the future anymore, just adjust.
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