Written by Robert Vaughan, Real Estate Professional in Corona
April 1, 2009 12:17 PM Foreclosure
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We are starting to see what looks like a trend with banks holding back their inventory. Is anyone aware of banks in their market holding back their REO inventories to put a stop to the downward pressures? In our macro market, there has been a 32% drop in REO sales in 1st quarter 09 from 4th quarter 08. Any REO agents care to comment?
If this is the case, I can see that there would be two primary reasons they're doing this.
If this is the case, I can see that there would be two primary reasons they're doing this.
First, in markets where REOs are the majority of the inventory, they can manipulate the bottom of the market by reducing supply. People think that foreclosures = great deal, and in many cases they do, however; is that sentiment going to change? Banks are tired of taking losses and if they can control the price they get by controlling the market, they will. Look at any well known REO agent's inventory, and you'll see a sharp decrease from only a few months ago. Banks are choking off the supply and demanding a certain price for the properties and this is frustrating buyers. Fine, buyers will go buy the other properties in that market, but when those are gone, they'll have no choice but to buy at the price the bank demands.
Secondly, there is a lot of incentive for a bank to hold on to "toxic" or 0 based assets right now. The government's plan to backup private investments and to purchase these assets off of the bank's books at a value that is more than likely going to be higher that what they would get by selling it to the open market encourages banks to hold on to the assets for the big pay-day. I don't know how their going to value these assets, but based on how the banks are behaving, it looks as though they think it's a good bet to hold back, on both fronts. So much for, "banks don't want to own property". Well, they don't, but these are desperate times that call for desperate measures.
Either way, many of the projections for the further decline of home prices include continuing rise in foreclosures as a factor. I wonder how this will play out.
Hello Robert,
ReplyDeleteIndeed there is evidence a plenty (Phoenix AZ) that the banks are manipulating the market exactly as you indicate and for the reasons that you mention. Further, beyond not releasing their inventory, they are delaying the foreclosure process in the first place and in many cases using that as a PR ploy to show how compassionate they are. I will copy forward your comments as your observations are right on! http://www.garybryan.blogspot.com