Foreclosure Freeze – Good or Bad for Home Values?

Three of the nations top banks have in the past week placed a freeze on moving forward with foreclosures.  Bank of America announced that they would delay foreclosures in 23 states and JP Morgan Chase has put a freeze on approximately 50,000 homes slated for foreclosure.  Ally Financial, formerly GMAC Mortgage has also followed suit as errors in the foreclosure process is being investigated.  Many other banks will probably follow suit due to processing problems where a process called “robo-signatures” was used.  This amounted to employees of the banks signing foreclosure documents without reviewing the paperwork, according to RISMedia Real Estate News.

It is amazing that there could be anything good come out of these type of problems the banks are having, but if you are in the process of foreclosure with those banks it could be a mixed blessing and give you more time to either sell your home in a short sale situation or work out a modification with your lender. 

Second, the delay may help keep home values from taking more of a dive from additional inventory of foreclosed homes hitting the market.   As we see home inventories for sale go up, home values follow in the opposite direction.  

The third advantage is that the individual homeowner may have more of a change to workout a solution with their financial institution and complete the loan modification process.  In many instances the process of modification and foreclosure with their bank were two separate functions that never talked to each other.  One day you are in, the next day out!

The bad side of this equation may be we are only delaying the inevitable. What will happen once the banks work through this freeze and start the process again depends on a lot of factors.    The biggest factor effecting us is the economy and the employment situation.  Hopefully, a delay in the foreclosure process will will give time for our unemployment rates to possibly decline some and the job market improve.  Important signals to stem devaluation of our housing market.

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Sunriver Market Update

The upward increase of home values in the early 2000’s changed our mindset on how homes are bought, sold, priced and valued today.   During that time, sellers could almost name their own price and have multiple buyers standing at the door to buy their property as its value increased almost daily.  Financing was easy to obtain and was available to almost anyone that wanted to buy a home.  With home prices increasing, the appraisers of real estate properties had ample comparative properties to base home values with little restriction.  With the increase in home sales the available inventory of homes declined, causing home prices to move even higher.  With this frenzy, homes changed ownership frequently and consumer looked at their homes as if they were commodities with a never ending demand.    

So in 2010, what is the difference in demand and how is it affecting our market in Sunriver and across the nation?   First, we have an abundance of homes on the market in relation to the demand to purchase.  As of August 31, 2010 active homes listed for sale in Sunriver proper was 339.  The inventory of properties range from single family, condo’s, town homes and shared percentage of ownerships.    To determine whether demand for property sales in our market is high or low, the concept of Absorption Rate is used.   Absorption rate is how long it would take for the existing inventory of properties on the market today take to sell, or be absorbed, at the current average monthly sales rate.  If demand is high, the number of month of properties to be absorbed will decrease and prices generally increase and vice versa.

As of August 31, 2010, the Sunriver market had 78 properties sold year-to-date, or an average of approximately 10 properties sold per month.   With 10 properties sold on average per month for 2010 and an inventory of 339 properties on the market our current absorption rate is 34 months to absorb the current inventory at today’s demand.  (In 2004-2005 the demand was less than 6 months of home inventory available.) 

With real estate prices on the low side and interest rates at their lowest in 40 years, one would think that sales demand would start to increase and prices would tend to head upward.  The old adage to buy low ….  But with unemployment rates high, increased regulations on buyers to qualify for mortgages (20%-25% down payments in our second home/investment market and fewer options of mortgage products) and higher oversight and regulations on the appraisal process to verify property values, we are at a point in time where the pool of qualified buyers has decreased.  As a result we are seeing the qualified buyers looking and offering on properties that are priced based on current market conditions.

Looking at property sales since January in Sunriver, the largest number of properties sold did so within the first 120 days of being listed (31 sales or 40%) and they had the lowest percentage of price decreases during the listing period (9.6% decrease from original listing price).  These properties were more than likely at or near market pricing, based on verifiable comparative sales.  As the number of days a property stays for sale on the market increases, prices historically decrease if demand continues to diminish (Sunriver averages 240 days).

So is there a light at the end of this tunnel?   The answer is yes.  As with all markets, they tend to adjust and recover over time.   That is the reason that all property owners need to know the value of their property on a regular basis.  So for a property owner, how do you find out where you stand in the market today?  We all receive regular statements from our financial advisors and bankers, why not from your real estate professional?  The best way is just to ask your REALTOR® to give you a regular update on the value of your property.  Most REALTORS® do this as a free service to homeowners.  Prudential Northwest Properties provides a free Property Investment Profile (PIP) that is customized to the details of your property that can be delivered to your email on a regular basis.  Knowing where you stand in today’s market will help you make better decisions on one of your largest investments. (Published in the Sunriver Scene, October 2010 edition)

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Covenants, Conditions and Restrictions-CC&R’s

When buying a home most buyers find a home by driving around to different neighborhoods looking for that home that most meets their needs.  When the property is found that attracts our emotion and basic requirements the process move forward to the next level, to make an offer to purchase.  One of the frequently overlooked steps is to understand if the property has any special Covenants, Conditions or Restrictions (CC&R’s) that limit or protect the usage of that property.

Most properties in Central Oregon have CC&R’s that are recorded on the title to the property that govern many aspects of its usage.  An example of a community that has an actively enforced CC&R is Sunriver Homeowners Association.

An example of a few questions a buyer may have are:

Most CC&R’s are easily attained.  Many counties or homeowners associations have them downloadable from their websites. If you are working with a real estate professional, they can assist you with this process.

Make sure that you are educated and understand the Covenants, Conditions and Restrictions of a property before you purchase the home of your dreams. 

Sunriver Rules & Regulations – CC&R’s – Click on Governing Documents




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