Came across this interesting blog post:
I think this author’s main point is that we should be skeptical of the “everything is getting better” messaging that is filtering through the press – to which I whole-heartily agree. True real estate professionals should always be cognizant of all the factors at play in a housing market – down to the street level. If we rely on just the headlines, we will end up in a situation like 2005 – 2008 when the “housing will always go up” mentality was at its height.
Two Other Key Points of this article include:
Statistics on foreclosure inventory are shoddy at best. – I agree- the data is all over the place. It’s tough to compare data sources and tell what is right and what is wrong – that is when it is helpful to take a step back and look at trendlines from each data source.
“REO to rental has become the next bubble market” – My first thought is that a 40% discount on unpaid principal balance seems like a reasonable discount considering the risk and bulk nature of the acquisitions – in fact it seems like a good deal for the lenders.
Second, I don’t think REO to Rental is a bad thing. This pulls supply of homes out of the market, it reinforces neighborhood pricing by eliminating distressed sales from the data pool which brokers, appraisers and AVMs will follow, (rising prices are a good thing for the economy), it creates an opportunity for investors (Having a few out-of-state rental properties myself, I’m not sure how profitable these rentals will be, but that’s why they got a discount on them ion the first place…) and provides needed opportunities for renters – tamping down the blow up in rents and apartment development that may be getting a bit overheated.
So is all the good news about housing activity in the Denver Market to be taken with a grain of salt – is it all broker hype and BS??? I don’t think so – the demand is there and the numbers are real. One key indicator I notice is the increase in transaction activity and the pace at which the market is moving. For every house coming on the market – a house is sold. Each of these transactions puts money into the economy, creating or sustaining jobs – this puts money in local people’s pockets which they can spend at local businesses, creating more money and more jobs.
For instance – 4,818 closings occurred in July in Denver – about 1,000 more than the previous year. The average price of a single-family, detached home sold in July was $312,920, of that, roughly $23,000 worth of 1st tier economic activity will be created directly from the transaction (broker/closing costs/moving, etc). Another $2,000 may come from secondary activity from the new homeowners as they fix up and customize their home. These are all rough numbers of course, but with 1,000 more transactions its $25,000,000 more in economic activity in the Denver Metro area than in July 2011 – put that together over a couple of months or a year and you start talking about pumping $300,000,000 more into the economy this year than last. Not a bad boost for the local economy and it all feeds into the increasing cycle of housing and homebuying – more people have more money and more freedom to make a change to their housing situation – as opposed to being stuck waiting out the market.