More About Foreclosures

For those of you who missed the Chicago Tribune Sunday Business Section article about foreclosures here are our observations:

It will be nearly impossible for a sustainable pricing recovery to take place while nearly 50 percent of all real estate sales consist of foreclosed properties.  At the present time, there are nearly 35,000 foreclosed properties for sale in the Chicago Metro Area, which is nearly a five-fold increase from about two years ago.  In order for the market-rate units to begin appreciating again, we need to see the amount of foreclosures drop by about 50 percent.

Also, homebuilders need to pay attention to the foreclosure activity in their local markets.  In the past, builders didn't pay a whole lot of attention to resale units (let alone foreclosures) as competition to their communities.  Now, everything is competition, from market-rate resale to foreclosures to rental units.  It all comes down to value.

Foreclosures fuel sales to first-time home buyers, may lead to real estate recovery

Distressed properties prompt multiple offers, can lead to sales in traditional market

By Mary Ellen Podmolik | Tribune reporter

May 17, 2009

Orlando and Aminah Burns became first-time homeowners last December when they bought a foreclosed two-flat in Bronzeville that they are now turning into a single-family home for themselves. Now they are in the market again, looking for another bargain-priced foreclosure to rehab into apartments or condos. And while the first two floors of a Grand Boulevard building two-flat gave them hope, the steep descent into the illegal basement apartment revealed dark, dank, mold-stained walls and water-damaged floors. "That mildew will ward off someone else that is brand new into it, but I've seen so much worse. I'm like, that's nothing," said Orlando Burns, who after thinking about it for a few days decided to offer $50,000 for the $39,900 property. Taking those few days to think cost him the building. Less than a week later, the lender accepted a $59,000 offer from another couple of first-time buyers who plan to convert the foreclosed building into their own single-family home.

Value-conscious, first-time buyers have become key to the housing market's recovery, and they are snapping up priced-right foreclosures despite the warts-and-all, sold-as-is condition of the properties. Half of sales made in the year's first quarter were to first-time buyers and almost half of all sales were of distressed properties, the National Association of Realtors reported last week. Distressed properties include foreclosures and short sales, which are private transactions in which a homeowner sells the property for less than the amount owed on a mortgage. The glut of foreclosures has pushed down home values, so heightened interest in buying them benefits the immediate neighborhood and the overall housing market. "It's a very good first step," said Lance Ramella, a principal at RW Real Estate Advisors in Oakbrook Terrace. "The first step is selling the most value-conscious units and those are the foreclosures. We're not going to see any real sustainable price appreciation until we move the foreclosures off the inventory list."

Read the entire article here.

Green Shoots

I must admit, I wasn't familiar with the term "Green Shoots" until Federal Reserve Chairman Ben Bernanke used the term in a 60 Minutes interview in Mid-March.  I now find myself searching for "green shoots" of economic recovery every day, after all, our industry depends on it.  I found this quote on CNBC.com on April 30th "among the reasons for optimism: a significant easing of the credit crunch, improvement in consumer spending, a potential bottom in housing, a less-grim jobs picture and expectations that the government's massive stimulus spending could start boosting economic growth sooner than later".  As I re-read this quote, I realized that there are too many "ifs" and "maybes" to really be considered tell tale signs that the economy is turning the corner.  So I continued my search for "green shoots'.  Today, the government announced that construction spending rose 0.3 percent in March, versus analysts expectations of a 1.5 percent decrease.  I think this qualifies as a very small green shoot.  Perhaps more impressive is the fact that the National Association of Realtors announced today that pending home sales increased 3.2 percent in March.  This usually means that actual home sales will increase in both April and May, which is indeed a green shoot.

We will continue our daily search for green shoots and report them here as we find them. Perhaps, sometime in the near future, we will have an entire field of "green shoots."