Abandoned California home photographed by Orin Zebest.
Asking recovery questions from another angle
It is no secret that there is a crisis in housing. Analysts vary on their opinion as to whether or not real estate has hit the bottom, and there is contentious disagreement about when a recovery will be in full swing.
Pending home sales (contracts signed) beat economists’ projections last week, perking up some analysts’ opinion on the market, but at the same time, National Association of Realtors Chief Economist Lawrence Yun is casting a hesitant and cautiously optimistic forecast for the coming years.
Lawsuits are flying in the banking world with homeowners suing for illegal foreclosures, as well as state and federal agencies probing lenders, with the Federal Housing Administration admonishing 240 lenders for violations. MERS is bowing out of facilitating foreclosures and judges are questioning the validity of thousands of foreclosures, throwing the entire process for a major loop with unpredictable consequences.
Regulations are shifting quickly and dramatically, with most industry insiders completely out of the loop, meanwhile, Americans believe troubled homeowners should sell rather than seek or receive federal assistance.
The scene is changing by the minute
With endless economic indicators pointing to a struggle in the housing market and courts changing their view on the foreclosure process, it is a confusing moment for the real estate sector.
Daniel Indiviglio, associate editor at The Atlantic asks, “are ugly houses preventing a home market recovery?”
The logic behind the Utopian question
The logic behind the question is based on Realtor Jeff Lichtenstein’s comment that “what Case-Shiller [home price index] fails to state is that there is a huge differentiation between ‘good inventory’ & ‘bad inventory’” and that clients never call and ask for a dreary home, rather they want a vibrant, beautiful home.
Indiviglio notes the disparity between ugly foreclosures and beautiful homes, opining that flipping the ugly homes for sale or lease would go a long way toward a recovery, noting “if the inventory is tackled through these strategies, then price aren’t going to suddenly soar, but they could begin to stabilize sooner.”
With so many factors at play, could something so simplistic get good mileage in bridging the gap between ugly foreclosures pulling down a market, and beautiful sale-ready listings?
Supporters and critics
Supporters of the theory that real estate flipping could help speed up a recovery could say that this disparity would do wonders for the market, while critics could say that by the time an ugly abandoned foreclosure hits the market, the neighborhood has already taken the hit on values, and the ripple effect ensues.
Perhaps it is a Utopian view, but improving the aesthetics of ugly listings could help, even if some believe flipping contributed to the fall of housing in the first place.
Manhattan Beach Agent
August 1, 2011 at 9:21 am
Big news this last week is that Bank of America, and other banks, are increasingly bulldozing distressed foreclosure holdings. I'm seeing this as a viable option for my clients, where homes bought in bulk REO tapes are so dilapidated, and are neighborhoods that increasingly resemble the Third World, that re-capitalization doesn't make the ROI cut.
Ideally, though, if flippers can re-capitalize homes in a declining neighborhood, improve the landscape / quality of life, and help turn the tide for local residents, then that's wonderful! That's not possible in all cases, however, as many areas of the country no longer warrant investment; they should be returned to wilderness, or farmland!
Roland Estrada
August 1, 2011 at 11:32 am
The idea Lichtenstein presents is ridiculous on it's face. There is not that much investor money out there. The key to economic recovery is jobs. With that comes stability for owner occ buyers to venture out acquire homes.
That said, the other part of the equation is the banks, both in terms of financing and asset management. The financing aspect is going to take time work itself out by getting a more robust secondary market back in the game.
The asset management part is something banks can enact almost immediately. Banks can allot funds to refresh the homes under their control in areas of the country where it make sense to do so. This brings money into the community through work for local contractors. Wells Fargo has program called ERA that does exactly that. The will go in and fix things like paint, carpet and appliances. They are burning money the longer they hold on to an assent, so they might as well spend a few bucks to move it faster.
Tina Merritt
August 2, 2011 at 6:53 am
As an agent who works exclusively with real estate investors, this is finally a voice of reason. The money is there; the investors have it. The issue has been the recent mentality of "investors bad", "owner occupants good" within the Administration. Owner occupants don't want many of these homes and/or cannot get financing to buy them. OO's don't want (nor need) to become construction site managers with rehab loans. In my area, our average foreclosure costs $37300 to correctly repair and update before even seeing a profit. That's not just a paint and carpet. Banks could move their inventory a lot faster if they would become investor-friendly.
Boise Homes for Sale
August 2, 2011 at 11:39 am
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Greg Cook
August 3, 2011 at 1:47 pm
I think flippers are part of the solution. Not sure where Roland works but a full third of our market are cash investors. Both the flippers and the buy and hold type.
For the most part cash investors will win the bidding war more often than homebuyers using FHA financing and that's a disparity we have to correct.
Value and accurate appraisals will always be the concern as far as lenders are concerned. Which is why FHA and most lenders have some sort of overlay when it comes to flipped properties.
Roland Estrada
August 3, 2011 at 2:15 pm
I should have expanded my original point. Flippers are part of a multiple prong solution but not THE solution. As Greg mentioned, cash investors are on third of of his area's buyers. I just don't think there are enough investors to cure all distressed properties. That's the takeaway I got from the Lichtenstein and Indiviglio comments. It's impossible.
As I mentioned before, bank programs like Wells Fargo's ERA program should play a larger role. They are already taking a loss on these properties. Why not give their assets a fresh look before putting them on the market. It's not like they won't take a write-off on it. Again, just part of an overall solution.
FYI, my market is Orange County, CA.