I had a lot of great dialogue with many of you after forwarding that CNBC article a couple of weeks ago. The reactions ranged from “Wow!” and “Bummer” to “WTF?” and “Should I sell my house now with all this activity?”
My friend John said it seemed contrary to a report he heard on NPR about how the Las Vegas housing market was still in the toilet. So I figured I’d address some of the confusion. First of all, the market pretty much is still in the toilet. This article is talking about the lowest quartile of the market. First-time buyers are competing with investors for cheap, small properties which will generate an immediate cash flow for those investors. The owners of these homes (the banks now) have already taken the beating.Any real live person trying to sell a home they purchased in the past 5 years or so (or that they drew out money on via an equity line or second mortgage) is having a hell of a time selling. Distressed properties represent about 78% of the market right now because real people can’t afford to take a bath on their homes. (I’ve had 4 sales this year alone where the sellers were the heirs of dead people. The dead will take anything for their homes.)
And what the article didn’t say, was that the reason that there are so many offers on these cheap houses is because banks are creating that frenzy by pricing the homes well below market (and, often, well below what their agents are telling them to list at) exactly so they’ll get more offers and create this flurry of activity. They have no intention of selling them at those idiotically low prices. But the more people you have bidding (especially if most of these people have already lost out on other multiple-offer situations), the more they’ll bid and the higher your sales price will be.
So given this dynamic, you’d easily get a higher purchase price on a property by listing it for $96,000 than if you listed it at $115,000.
But the big kicker here is that the inventory is so low because the banks are not releasing the thousands of foreclosed homes they now own. It’s like OPEC. By restricting the supply, they’ll keep the prices higher.
New laws are going into effect that will force the banks to maintain upkeep on the foreclosed properties so they don’t lower everyone else’s property (how many dead lawns do you see when you drive around?). This may nudge the banks into releasing more properties since there will be an active financial incentive to do so, albeit small.
We wait. We watch. We wonder.
