The quality, as well as the quantity, of many bank-owned properties in the REO inventory is creating a drag on home values because they are difficult to sell in today’s market, Scott Sambucci, vice president of Altos Research, said yesterday in a Webinar for investors.
Many foreclosed homes have been vacant for a year or more and need major repairs and maintenance. Investment is needed get them ready to move in and first time home buyers generally don’t have the cash to spend on major repairs. Investors and speculators are traditionally the “motor oil” between REOs and first time buyers, buying them at deeply discounted prices and fixing them up to sell, Sambucci said.
But lower prices are making it difficult for speculators to flip REOs, making it even more difficult to move them in some markets. Banks have to lower prices to sell them, making them a drag on home values.
Sambucci expects prices to fall an additional 5 to 10 percent nationally next year before hitting the long-awaited trough and beginning a slow climb to recovery, sometime before the end of 2011. Critical factors shaping the market next year will be the uneven quality of the REO inventory, the rising size of the inventory and declining demand.
The recovery will proceed at a slow pace, taking several years, from 2012 to “2014ish”, Sambucci said.
“Next year will be a good time to get into market if you can afford to stay,” he said.