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How Did We Get Into This Mess?
Every one wants a deal; you do and I do and they do. When we hear the word "foreclosure" we automatically think...BARGAIN and we want to get in on the action. But let's talk a bit about what is a bargain, and what is not.
Let’s start by looking at why there are currently so many foreclosures in
Las Vegas
. Back in 2003 we were experiencing an extreme real estate boom or market surge, whatever you want to call it, everyone suddenly started buying up as much property as they could. By early 2004 there was very little property left to buy, and what wasavailable was listed for inflated prices and properties became so expensive that most people could no longer afford to buy.
But then, many lenders loosened up their guidelines for buyers to qualify for financing. These were considered creative ways to help buyers get financing on these expensive and overpriced properties. Two examples of the most common loans that were applicable during this time period were
3/5/7
arms, and 100% financing which includes 80/20 loans. Some of these loans turned out to be what is now known as sub-prime. It’s important to note that it’s not the loans themselves that generated sub-prime lending, it was the low standards imposed on the buyers to qualify for these loans. In fact, these loans are still around today but the bar has been raised. Granting financing to buyers with a credit score below 620-650 was generally unheard of without at least 10 to 20% down. But suddenly you could make it happen for no money down with credit scores of less than 600.
Who were all these buyers and where did they come from? Many, or most of them were out of state investors. Some were 1st time investors trying to tap into the action, and others were seasoned at the process. Some were just regular home buyers wanting to find their dream home before all the housing was gone. And the rest of the foreclosure mix was existing home owners pulling out all of their new found equity with refinancing. Those that bought and sold within a year or so made a quick profit and got out of the market. Those that had a 3 year arm have now reached the end of their 3 year term and are trying to sell in a depressed market but are unable to do so. Their monthly payments have now increased to an extremely high contracted rate and they can no longer afford to rent because rent doesn’t cover the mortgage payment. They can’t afford to sell it because of the decrease in value, hence…foreclosure.
Then there was the family that was so anxious to get into a house in 2004. Although they were approved for their financing, they were pressed to the limit on their mortgage payment. Since then, many have experienced the normal day to day dilemma’s such as job loss, divorce, or any number of hardship issues that will not survive a sky high mortgage payment. Hence...foreclosure.
So now that we do have a ton of foreclosures/repo’s out there, maybe you could pick one up at a good price??? Well, from the lender’s standpoint, on a $350,000 home that was financed at 100% in 2004 may be worth only $315,000 today. Plus the lender has to pay closing cost just like everyone else, along with other expenses involved in foreclosures. In this particular case, the lender is faced with a loss in excess of $65,000.
There is no wiggle room for a lender to offer discounts. Rather than take a low offer, I’ve seen lenders hold out for many months just waiting for the right offer to come along.
With all this said, there are in fact those rare occasions when a foreclosure can be had for a very good price indeed; just as there is that rare occasion where you may find a needle in a haystack. Yes, they are out there but are often times snatched up by big time investment firms that hire Realtor’s to scope out the market for them as a full time job. Also, many if not most foreclosed properties are in great need of repairs. These repairs can cost you - the buyer – many, many thousands of dollars. By the time you do the repairs, it wasn’t a deal after all.
End Result
From summer of 2003 to summer of 2004 we experienced a fantastic market explosion like no other in
Las Vegas
. It was wild and crazy, people bought and sold without ever seeing the properties. For a 1 year period, a lot of people made a lot of money. But the point is, it was just for 1 year. How were you to know that 2003 could have been your magic year? No one know, even the seasoned investors were taken by surprise. The difference was that they were already playing the market (and still are) and the boom just stumbled right in front of them.
Soooo – Deal or no Deal, you decide.
Don’t get discouraged - Think you missed an opportunity? Look at it this way –
This is the perfect opportunity to buy a property at a very good price.
M
oving forward to focus on your future is the best thing you can do today.
Don’t get discouraged – Like the stock market, real estate is usually very profitable if you stay
in it for the long hall - the long hall could be 5 years or it could be 15.
This is a great time to buy, and stay in it for the long hall.
FYI -
You can search for foreclosed properties on my “BUYERS MLS search” button on the home page just by typing in your criteria. If there are foreclosures available in your price range, they will appear along with all other available properties. If you need assistance, I will be happy to customize your search for you.
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