Market Conditions: Juicy Foreclosures Prompt Bidding Wars and Talk of a Bottom
On Sunday, the Chicago Tribune looked into the recent buying frenzy over foreclosures in the Chicago area that is clearing out some of the excess inventory.
From the Tribune:
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.
“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.”
If you’re buying a foreclosure, it helps to have a big downpayment to compete with the cash buyers.
After saving money for years, Lincoln Park renter Bill Samuel started looking at foreclosures as a way to stretch his budget. The day that he walked through a Logan Square condo that was basically intact, he wrote up an offer on the spot. The condo, which last sold for $360,000 in 2007, was listed for $199,900 and already had two offers above the list price. Samuel offered the list price, but a 30 percent down payment is what got his offer accepted.
Remember our recent discussion of 350 W. Belden in Lincoln Park? This was the bank-owned 2/2 that was priced nearly $150,000 under its 2006 purchase price.
See our May 4 chatter here.
It sounds like it has already sold (if this is the same unit referenced in the article).
Attractive pricing is causing a noticeable increase in multiple offers. In just the past two weeks, a two-bedroom, two-bath Lincoln Park condo listed at $289,000 garnered 60 showings in two days and 20 offers; it sold for just over $330,000. A vandalized East Village penthouse that needed at least $80,000 in repairs was listed at $159,000 and sold for $245,000. In Northbrook, a foreclosed home listed at $719,000 received multiple offers and sold for $730,000.
A bidding battle on a foreclosure with potential “is not the exception,” said Henry Torn, a buyer’s agent at Chicago Realty Partners.
Is the result of this “bidding war” on the Lincoln Park condo the fair market value of this 2-bedroom unit?
Unit #607: 2 bedrooms, 2 baths, no square footage listed
- Sold in May 2005 for $438,000
- Bank owned as of January 2009
- Was listed in early May 2009 for $289,900 (parking included)
- Sold for $330,000???
- Assessments of $436 a month
- Taxes of $5478
- Central Air
- The listing doesn’t say anything about an in-unit washer/dryer
- Bedroom #1: 11×13
- Bedroom #2: 13×18
Foreclosures fuel sales to first-time buyers, may lead to real estate recovery [Chicago Tribune, Mary Ellen Podmolik, May 17, 2009]
Oh Sabrina – Sure we remember the LP forclosure you chatted about. Do you remember saying that it is still ont he market because interest in foreclosures is gone? How many offer did it get in the first weekend?
Now will you admit you have no idea what you are talking about? Just say “Steve is right and I (Sabrina) am wrong”
What is the FMV of this unit? Around $389,000 is the FMV like I said last time you posted. I had two clients that bid cash over the asking price and still lost. $330k is a little rich to flip. The buyer did a great job and will easily sell this around $400k when they are ready to move.
See Sabrina’s comments –
“Sabrina on May 4th, 2009 at 7:25 am
“Assuming taxes can be rolled back to reflect the purchase price at 290k this looks like a deal. Then again watch as someone, likely an investor, bids this up to levels that don’t CF.”
This is the interesting thing about the foreclosures right now. Six months ago, the juicy foreclosures in the “better” neighborhoods were selling the first day on the market.
This unit has already been listed for, gasp, four or five days and so far it’s still available.
I see the same thing happening in the South Loop or in buildings like The Sterling, in River North (which we’ve chattered about many times.)
2-bedroom foreclosures in the Sterling used to sell within a few weeks but now they sit for much longer (60 days and more). A 2-bedroom unit on a relatively high floor just closed for what I believe is a record low for the building of $249,000. The low floor 2-bedrooms sold out of foreclosure last year for $255,000 to $260,000- so prices are still trickling lower in the building.
The excitement over foreclosures seems to no longer be there.
We’ll see how long this one sits on the market.”
Now let’s see my comments
“Don’t tell Sabrina it is a steal. She has no idea and thinks this is FMV ”
And who knows their stuff? 🙂
This is my favorite one…
“I have hesitated to say this but you guys are just a bunch of idiots. You have Sabrina saying no one wnats to buy this place when is reality there are 8 offers in 1 week. You have this moron from above trying to rationalize why no one wants to buy bank owned properties while again this very property has 8 offers in 1 week.
Open you f’n eyes!!!”
LOL 🙂
My 2nd favorite –
“I will start another bet here (I realize I lost the last). Sabrina, you start with your prediction on the following…
Will 350 w Belden close for above or below the asking price? I will say at least $10K above and I will say the bank will be finsihed reviewing their multiple offer and have it under contract by Friday.
I will also say that this place will go back on the market in less than 4 weeks and will sell for close to $400k when flipped.
Let’s here it renters???”
Steve Heitman, please lay off the coffee.
Me thinks Stevie has a crush…
funny thing is if steve was right all along about housing then we wouldn’t have all these foreclosures to begin with. so the fact that he’s “right” about this proves he was wrong the past few years about the overall housing market.
6 comments in a row from Steve yet when he was wrong FOR MONTHS he disappeared with his tail between his legs. The summer buying season comes around and he’s OUT IN FORCE on -one- property hounding Sabrina.
Dude, you’re pathetic.
He’s more than pathetic, he’s just an A$$hole.
Way to waste your money buying a moldy house… Even for $50k… you’ll never be able to resell that thing, so I hope you plan on living there for 30+ years!
I thought to myself, wow, 12 comments, I would love to hear the insightfull comments that all the members contributed. Instead its just DB stevo trying to protect his ego. Hey Steve, do you like fish sticks?
SHill, 1 right out of 50 is still only 2% correct. I’m guessing that Sabrina has been right about cribs she posts more than 50% of the time (and she comments on them all), while we only see you commenting on about 1/10 of the listings, never admitting when you are way off.
SHill’s guide to success:
1. comment on a small minority of cribs
2. make vague comments like “The buyer did a great job and will easily sell this around $400k when they are ready to move.” (what if they move in 10 years and sell for 400K? not that great of an investment) OR “FMV of the place is $390K” yet it sells for $330K (per wikipedia: “the actual transaction price is usually the fair market value”)
3. if it sells for a loss – blame it on the owner buying in a bubble and making an unwise investment. If only SH had been their agent, they wouldn’t have made the mistake.
4. if it sells for more than previous amount, comment-bomb crib chatter proclaiming your greatnes
Check out this link on the state of the market for Chicago downtown condos:
http://yochicago.com/today/market-conditions/quote-of-the-day-lawyering-up_8803/
Developers now suing those backing out of contracts. Actually I’m glad: these specuvestors deserve to lose their earnest money and pay for the cost of upgrades. They shouldn’t be able to just walk leaving the developer holding the entire bag.
SHill is an idiot!!! He said the FMV of the crib is $390K and it sold for $330K! Does he know what he’s talking about?
/end sarcasm
““FMV of the place is $390K” yet it sells for $330K (per wikipedia: “the actual transaction price is usually the fair market value”)”
C’mon, REO sales are one of those “not usually” situations. Distressed sales need to be discounted somewhat in analyzing market value–indeed, check out the Case-Shiller methodology description, they place less value on REO sales.
Do you think that the prices of cars at the to-be-closed Chrysler dealers will be FMV?
Anon(tfo), what if distressed sales are the majority of the market?
“C’mon, REO sales are one of those “not usually” situations. Distressed sales need to be discounted somewhat in analyzing market value–indeed, check out the Case-Shiller methodology description, they place less value on REO sales.
Do you think that the prices of cars at the to-be-closed Chrysler dealers will be FMV?”
Talk of a bottom in RE valuations anytime soon is silly talk. The Option ARM and Alt-A defaults have barely started, and will wreak even more havoc in the next two years than the subprime defaults did because unemployment is now higher, home values are lower and interest rates are going to rise. It’s gonna get much worse before it gets better.
JPS,
I am unsure of when interest rates are going to rise. I think trying to predict interest rates is damn near impossible. Especially with our interventionist government using unorthodox measures to temporarily artificially lower them (how long can/will they do this?)
That being said the Option-ARM and Alt-A defaults are very predictable and will happen. Basically a lot of idiots got loans that shouldn’t have up until the summer of 2007, so we’re stuck waiting for them to default (and they will) up through summer of 2012 when their funny money mortgages recast.
the end is near!! housing is going to zero!!
“Anon(tfo), what if distressed sales are the majority of the market?”
Panic?
“The Option ARM … defaults have barely started”
Show me the data! Yes, we’ve barely started on the scheduled re-sets, but I think everyone is assuming rather than showing evidence, at least as far as I’ve seen anywhere.
No, brad, but if you bought in the past few years that might be where your net worth is going.
What am I saying? Zero net worth would be a win for many FBs.
If the panic doesn’t count, why should the manic?
This blog is specific to California, but much of the data isn’t:
http://www.doctorhousingbubble.com/option-arms-and-recast-shock-syndrome-toxic-financial-products-are-imploding-on-schedule-examining-the-impact-on-california/
On the Option-ARM recast schedule more are being moved to the out years (5yr from loan origination) instead of earlier as the Fed’s artificial lowering of interest rates are helping these people push out their recast date/day of reckoning. But it can’t go beyond five years. Look at the ARM and a leg chart showing their payments will go up anywhere from 40-80% when their loan is recast. These loans are toxic and worthless, ticking financial time bombs basically.
Maybe we can’t get Stevo to admit there was a bubble but atleast Zekas is coming around:
http://yochicago.com/today/neighborhood-journal/quote-of-the-day-from-pilsen-to-ravenswood_8799/#comments
“…prior booms didn’t leave Chicago with the overhang of unsold inventory that this one has.”
“Owners sat on property and what became available for development was fairly limited. That resulted in a scarcity factor that drove prices, especially land values, beyond sustainable levels. Think of the $1 million lot prices in non-prime parts of Wicker Park – a measure of insanity if ever there was one.
That scarcity of developable properties also drove development out into the third-tier neighborhoods. Demand for developable parcels has been vaporized, probably for years to come. Patient developers with cash are going to acquire property in closer-in neighborhoods during this period of stagnation.
At the same time, Chicago’s economy is contracting and shedding jobs in some of the sectors that drove demand. Rents are stagnant or falling slightly. Etc. Etc. Etc.
We’re in for some tough years, hopefully few of them. When those years have passed the third-tier neighborhoods will have lost all perception of any momentum and will need some time to regain it.”
that sounds more pessimistic than Joe has ever been. maybe someone hacked his account.
In places like CA foreclosures are the new standard pricing: little else is selling. Exclude the REOs and the market is at a standstill.
http://seekingalpha.com/article/137979-housing-market-rebound-by-2010-not-likely
JPS according to brad’s post the other day other blogs or random sites on the internet at not valid sources of information to be used for evaluation of the housing market.
Homedelete – i agree that there is a separate market for distress sales versus traditional sales. depending on the locaiton distress sales can be half or more of the market.
to bring it back to this unit, i would not be surprised if a flipper did buy it – in fact, it’s most likely a flipper/investor, as it appears that they paid cash.
banks have gotten to the point of “underpricing” things, imho, in order to get a fast and guaranteed sale. a lot of people are going to make a lot of money off this downturn.
So when comparing the sale of median home prices over time will there be an asterisk next to 2008-2011 saying that REO’s shouldn’t really count? Why is it OK to use the original selling price of an REO on the way up but not the REO selling price on the way down?
well, now that you phrase it that way……
i’m not saying the REO/distress sales don’t count – i’m just saying they are selling much cheaper than non-REO sales, even for identical units. and there is money to be made if you can get in and out fast enough.
“Why is it OK to use the original selling price of an REO on the way up but not the REO selling price on the way down?”
Send the question to Professor Shiller.
And, if it were REO on the way up, it would have been discounted, too.
Zillow discounts REO resales whereas the CS includes them provided they are an ‘arms-length’ transaction.
www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf
http://www.zillow.com/blog/case-shiller-is-it-really-that-bad/2009/04/02/
“When they can be identified from a deed record, non-arms-length transactions are excluded from the pairing process. The most
typical types of non-arms-length transactions are property transfers between family members and repossessions of properties by mortgage lenders at the beginning of foreclosure proceedings. Subsequent sales by mortgage lenders of foreclosed properties
are included in repeat sale pairs, because they are arms-length transactions. “
I actually planned on seeing the $159,000 penthouse that the article tasks about. It was in a 5 unit building, taking up the entire top floor with front and rear teraces runnin the entire width of the unit as well as internal stair to the roof.
The unit looked very large and had 3 large bedrrom, I saw the listing on day 5 and by the time my realtor made an apointment there were already mutliple offers and I never got to see it.
THe entire kitchen was removed, i mean entire. all appliances, cabinets, and counters. Even the rood and pendant lights. The bath were also looted. According to the deed this place originally sold for $550K back in 2005 and $700K in 2007. Even if you spent $60-80K on rehabbing it the buyers got a great, great deal. Wouldn’t be surprised to see a flippers putting this back on the market in 60-90 days.
I will try to find the MLS#
HD:
Read further. CS “includes” them and given a reduced weight in calculating the index, at least if the prices are substantially “off-trend”*. Thus, they are “discounted” (at least gen, as I said.
*The degree to which sale pairs with extreme price changes are down-weighted depends on the magnitude of the absolute difference between the sale pair price change and the market price change.
By the time most of these options ARMs start to reset, I’m sure our politicians will have already bailed out all the irresponsible borrowers. They’re already going to pay borrowers that are able to work out a short sale with their lender. Great message! Hey, take out way more debt than you can afford, stop making your payments, and call your lender and offer them .75 on the loan dollar. If your lender accepts, we will pay you.
The point is that the govt will pass some form of legislation (probably requiring all ARMS be converted to fixed rate mortgages at 4%) before we get to all these resets. RMBS investors will get the shaft and will be demonized when the protest the legislation. Just like the Chrysler bondholders did…
MJ,
I’m fine with that outcome. If the RMBS bondholders actually did due diligence during the boom instead of relying on Moody’s and S&P fudged AAA ratings they wouldn’t lose their money. They blindly trusted a ratings agency to do their homework for them and their trust was misplaced. When my own money is on the line I do my own homework, this is a lesson they need to learn.
Bob,
I agree. The investors are just as much to blame as the borrowers, rating agencies, and wall street. Had the investors not demanded the bonds, wall street wouldn’t have created them. But, the govt. has no right to undo contracts. The bondholders bought the bonds under the assumption that the mortgages would be serviced pursuant to the pooling and servicing agreeement. What little confidence investors have left will be completely lost if the govt comes in and changes all the rules. And these are the same investors the govt wants to participate in TALF 2.0, PPIP, etc.
Just so everyone knows. The bank actually accepted a financed offer because the price was much higher than the other cash offers. How they will finance it with appliances is another story…
People selling dollar bills for 25 cents! There’s no catch, right?
Too many dumb money investards think a house is automatically a great deal just because it’s a foreclosure. As if a $20,000 discount is a great deal for a house that is uninhabitable. The next wave of foreclosures after the option-ARMs will be foreclosure buyers and the no money down FHA buyers thanks to the tax credit.
By the way, I laugh my ass off at how many Chicago realtors think the tax credit will get so many buyers into the market. On a $400,000 house that’s a whopping 2% discount.
“On a $400,000 house that’s a whopping 2% discount.”
The only segment the realtors have left to try to lure into the market is the entry level segment. Most other home loaners are stuck under their loan balance.
And with no or almost no money down they can get a 24yr old single yuppie into a quarter million dollar 1/1 in one of the ‘coveted’ hoods. That 8k tax credit is going to do wonders for this segment and putting young, financially illiterate people into 250k apartments.
I think this will increase realtor transaction volume significantly at the entry level and they have reason to like this credit. Its the people lured in by this congressional bait that I feel sorry for.
“And with no or almost no money down they can get a 24yr old single yuppie into a quarter million dollar 1/1 in one of the ‘coveted’ hoods. That 8k tax credit is going to do wonders for this segment and putting young, financially illiterate people into 250k apartments.”
Everyone (rightly) focuses on the Chicago outcomes of the tax credit, but anyone using it to buy a $250k 1/1 is an unintended beneficiary of a policy focused on the “typical” home buyer purchasing an approximately median SFH in East or West Bumble.
It’s also intended to be a non-targeted welfare program for Lenders holding lots of REO in exurban areas of the sand states and New Home Builders with lots of inventory. It’s a very blunt instrument for this, but the banks and the builders will be the largest individual beneficiaries of the program.