The Tale of Two Markets
The local real estate market – any market area – is really the story of two categories of homes. The first is the traditional, conventional market of homes for sale, and the second is the distress marketplace of homes owned by people in the midst of a financial crisis. Foreclosure markets move through their cycle at a much faster rate than the traditional real estate market. A period of intense activity can change abruptly and a period of virtually no activity can suddenly spike to an intense level. In either event what you believed to be true last month may no longer be factual today.
One Distress Sale Can Force Home Values Down
As I have written in previous blogs, it is the “6 Dreaded D’s” – death, divorce, disease, drugs, denial and da job – that affect foreclosure activity. It only takes a few distressed sales to force prices lower even in the best neighborhoods. In a condominium complex this is especially true where 1 or 2 distress sales can significantly suppress values in a complex affecting everyone hoping to sell or refinance.
The Bottom Can Only Be Seen in the Rear View Mirror
Active, pending and sold data from the Multiple Listing Service (MLS) no longer provides a comprehensive view of the local market activity. Foreclosure sales fill the void in the data spectrum by showing what the other half of the real estate market will pay for comparable property. Investors armed with cash and the ability to act promptly is seeking immediate cash flow returns. They are not praying that appreciation turns their purchase into a steal of a deal. To a buyer looking for a home to live in it is about much more than cash flow, it’s more about finding the right home for the family…and schools…and safety. Those are two different playing fields with different rules. Regardless of how deep the foreclosure market falls, the bottom of the market will settle at the point when affordability returns and investors can purchase rentals with a positive cash flow. For most people, that point will be discovered in the rear view mirror.
Don’t Fall for Infomercials and “Below Market Rate” Schemes
Monitoring foreclosures can provide a preview into the real estate market just ahead. Foreclosure data is free and abundant; knowing how and when to use that data is not. Many foreclosure data resources either directly or by implication convey the message that consumers don’t need Realtors in a foreclosure market. They tout fabulous promises they you can buy a 4 bedroom, 2 bath, single family home in excellent condition for less than your rent payment. The truth is that if you pay 50 cents on the dollar for a home, it’s probably worth 50 cents.
Leave Buying at Trustee’s Sale to Professionals
Finally, buying at the Trustee’s Sale should be best left to the professionals who have the money, resources and minds-set to navigate in the arcane arena. Consumers should not buy foreclosures without the guidance of a qualified REALTOR or foreclosure professional. An opinion learned the hard way.
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Raymond Stoklosa, Chela Stoklosa and Rebecca Williamson are Realtors with The RayChel Realty Group specializing in Santa Clara and San Mateo Real Estate.
Raymond Stoklosa, Broker/Co-Owner
Chela Stoklosa, Realtor/Co-Owner
