Real estate foreclosure rates are accelerating to staggering numbers in many large and small marketplaces across the country. Here in Mammoth, foreclosures are moving at a different pace. Presently, there are fewer than ten lender owned properties in Mammoth. Having just completed an actual sale to a new owner and placing two other lender owned homes into escrow, I’m getting a clearer picture of how the foreclosure process is going to work––and some of it will vary lender to lender.
The Internet is playing a major role. The information is out there. And the flow of paperwork from the asset managers to the agents, and back, is all electronic. Decisions can be made quick. And the lenders and asset managers are real sellers. There’s no emotional attachment to the property, no memories, and no delusion to what the property will sell for now compared to four years ago. Each lender has a particular set guidelines and processes––and offers need to be presented in a precise format according to those guidelines. Weeding through all of this paperwork and procedure can be very time consuming. Many of the asset managers are on their own learning curve. Some are handling hundreds of files.
Each property is evaluated with a series of appraisals (by appraisers) and Broker Price Opinions (BPOs) by local real estate agents. So far the properties are being listed at attractive prices. Properties are sold “AS-IS, WHERE IS”. And the lenders don’t have the money to make significant repairs––even if the property needs it. Buyers offering 20% to 40% below the asking price (and they are) are fooling themselves. The Mammoth market isn’t there yet, and only the future will tell if it gets there. And time is of the essence––some properties are receiving immediate multiple offers. When most buyers live 300 to 400 miles away it becomes difficult to view the property. But at least the skiing is great so the trip is worth it.
As we get through more of these transactions we’ll learn more about the whole process. But how will all of this impact the larger market in Mammoth? After all, a rash of foreclosures can destroy values in a local market. My conjecture over the past couple of years has been that the number won’t be excessive. So far, that is what we’re seeing, especially in relation to other markets. Those owners that have been foreclosed on typically bought in the past three years and had multiple loans on the property. Some just gambled and lost. Because the Notice of Default-to-lender owned listing process is a 6 to 12 month process, we can see what the potential lender owned properties may be in the future. The number in the pipeline is minimal with no real growth trend noted at this time. This should be considered very positive for upholding values in the market.
What we have discovered through marketing these lender owned properties, and the balance of the market has displayed the same, is that there are plenty of buyers for and pent up demand for quality properties at a price point that lies 10% to 30% below the peak values of 2-3 years ago. That aspect of the market continues to impress me. When we received multiple offers within days on lender owned properties––that’s the proof to me. If the sellers get their prices into that buyer’s zone, then they are likely to receive offers. Other sellers are looking at this trend and are thinking they want to wait it out. The standoff continues. But will those buyers be there in the future years at these prices? We shall see. The foreclosure and lender owned properties should be a key and frontline indicator in the direction of the market. Stay tuned. I promise to keep my readers apprised of this segment of the Mammoth real estate market. Now back to all that paperwork.
Thanks Paul, I found this statement particularly interesting-
“What we have discovered through marketing these lender owned properties, and the balance of the market has displayed the same, is that there are plenty of buyers for and pent up demand for quality properties at a price point that lies 10% to 30% below the peak values of 2-3 years ago.”
Based on that….is it reasonable to conclude that since the median condo price was in the mid-$400,000s 2-3 years ago, these potential buyers are ready to pounce at prices in the mid-to-upper $300,000’s?
If so, it looks like buyers feel comfortable at pricing at 2003 levels (see Paul’s chart below) That makes sense because that’s when the lending institutions surrendered sanity for their infamous love affair with “exotic loans”. So, if we’re headed back to traditional lending benchmarks….I think we have growing evidence that the price floor will be somewhere around 2003pricing.
Now I’m wondering just how many units will ultimately be put through the “distressed sale”, “short sale” or “foreclosure” ringer before the market builds a sustainable support level.
The only way I can take even a rough guess is to look at Paul’s total sales figures that show about 2,000 condo sales since 2003. If we assume the ones purchased in 2005 and 2006 are in most danger of being “upside down” then that leaves about 1,000 units in the potential distressed category. Of course not all those will be sold in distress and in reality only a small percentage probably will. So, let’s just say 15% (150 units) of the 1,000 will be sold as distressed properties over the next three years…that is on average about 50 per year.
Is that a lot? Well, if you’re selling 616 condo units a year like in 2005 then its tolerable…but if you’re selling only 155 like in 2007 then…OUCH!
There is nothing in the market that suggests we are going to see a huge spike in demand in the near future (ok, maybe if a groovy airport suddenly materializes and we repeat the record snowfalls in 05’ and 06’). Otherwise, my bet is Mammoth generates about 150 to 250 condo sales per year over the next few years. That means distressed sales could comprise about 20% to 30% of all sales, which ain’t so good. Wilbur
Mammoth Condo Sales
Total Median
Year Sold Price
2000 435 $225,000
2001 391 $199,000
2002 503 $249,500
2003 606 $350,000
2004 499 $450,000
2005 616 $465,000
2006 371 $560,000
2007 155 $625,000
You are not going out on a limb by saying lenders, or home builders anywhere in the country are going to feel an ouch…They already have. Look at their stock price…down 70%..go to yahoo finance. Anyone working in the real estate sector is done. Case closed. The question at this moment is how far are prices and rents going to go down…How bad the economy is going to be. If you are paying a mortgage for 425k and the same place next door rents for 900 a month, then it makes no sense to keep throwing away money on a terrible investment. Also, how does the economy of a ski town do during a recession? Do they do good? When consumer spending drops dramatically, does that effect everyone working in a ski town positively? discuss(‘()))
Wilbur, be careful with your honesty, you may hurt someone’s feelings who was such a successful person in making their biggest purchase during bubble prices. Because they worked hard the first thirty years of their life. Reality is not something they want to hear, only that they are successful, and that even though this is going to be the biggest price decline in U.S. history, that it was somehow not the mistake of a lifetime to buy in the last 5 years.