US foreclosure tracking agency RealtyTrac has told the US real estate press that it will be at least 2013 before the repossession problem is back under control. This is ultimately very bad news for the US housing market, and for homeowners, but the silver-lining for property investors is that there will be plenty more bargain US properties coming onto the market in the coming years.
The statements were made by a Rick Sharga of RealtyTrac in a conference with the National Association of Real Estate Editors, in which he talked about the so-called "shadow inventory". Sharga said that of the 3.5 million homes repossessed in 2009 only about 20% of those were listed for sale, as the banks were overwhelmed by the sheer volume and speed at which the problem escalated.
Needless to say the shadow inventory was huge coming into 2010, and there have been hundreds of thousands of homes repossessed already in 2010. The fact that over 370,000 homes were repossessed this March alone compared to RealtyTrac gives us an idea of the size of the current shadow inventory.
As time progresses the channels to bring these homes to market are getting better. However, the banks and lenders will always give up the best properties for first refusal in their own ranks before listing it to outside investors, and this will therefore always slowdown the process of these homes coming to market.
One thing that is not slowing down is demand to buy these properties as confidence in the international recovery brings increasing numbers of property investors.
Arguably, repossessed property in America is one of the top property investments on the global market right now. Many of the properties are being sold for up to 50% below their replacement build cost, which makes them a no-brainer if we dare call any property investment that after such a catastrophic crash.
In fact, replacement build cost has become the way of measuring the discount being offered by repossessed and other below-market-value properties for sale. As people started buying property again, people would hear that a property was being offered at 20% below market value, and they would soon find out that it was 20% below the peak market value, not the current market value. In the fast-paced world of repossessed sales, replacement build cost is a good measure of current value, with no time to do a proper valuation.
On this measure, a property being sold for 40% below its replacement build cost is most likely at least 20% below its current market value, and could be up to 50% or even 100% below its current market value, depending on the quality of the property, and the neighbourhood etc.
Most repossessed properties are being sold at such low prices that their being a bargain is undeniable. The question then becomes, is it going to regain its former value, and when it comes to America, that is unquestionable in most places. So then the only thing stopping people is their financial situation, or lack of confidence. So, now that both of these things are improving, so the number of potential investors in repossessed US property is also on the rise.
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