June Market Update – Are the Days of Foreclosure Deals Over?

Are the days of foreclosure deals over? Or at least the days of foreclosures greatly impacting home prices? I suppose the answer to that question depends a lot on what the economy does from here, but one thing is clear – foreclosure listings are currently making up a much smaller number of the homes for sale in Flagstaff.

Currently, only 13 out of 498 active listings in Flagstaff are foreclosures (bank-owned). Last year at this time, 35 of the 748 active listings in Flagstaff were foreclosures. (As you can see, active listings have gone way down as well.) In May, only 17 of the 99 sold listings were foreclosures compared to 25 of the 77 total MLS sales in May of last year.

What does this all mean? First it means there’s less downward pressure on pricing for those homeowners who need to sell. For the past few years, it’s been difficult for homeowners to compete with the pricing of foreclosures. It also means that neighborhoods aren’t as plagued with the downsides of so many foreclosures. Can buyers still expect great deals? Yes, in many cases, but it wouldn’t be wise to limit your search to distressed properties. Not all great deals are foreclosures, and really not all foreclosures are great deals. On the flip side, for buyers wanting homes that don’t need a lot of work, it’s encouraging that their choices aren’t as slim as they were in the past few years when so many of the available homes were distressed.

What About Shadow Inventory?
With such low inventory this year, many people are waiting to see if the banks flood the market with shadow inventory. There’s great talk and speculation the the banks have a backlog of homes that they’ve foreclosed on but haven’t put up for sale, and that when they do it’s going to cause another oversupply of homes. The good news is that the shadow inventory (especially in places like Arizona) has been decreasing – lessening the chances of this happening. The reality is that the banks generally want to get rid of property they own as soon as possible because it’s a drag on their balance sheet. Oftentimes, if they haven’t put a home on the market, there’s a problem with the title or the property that they have to clear up first.

Click here to read more on the shadow inventory levels.

Will There be a Short Sale Wave?
One interesting question is whether there will there be a short sale wave. Congress passed the Mortgage Debt Forgiveness Relief Act in 2007 which waived the tax liability on forgiven mortgage debt for many people, whether through a foreclosure or short sale. Unless Congress extends it, this Act expires at the end of 2012, so it’s conceivable that many people who have been considering a short sale may try to do so now to get it done by the end of the year.

Source for Statistics: Northern Arizona Association of Realtors MLS – Flagstaff area residential home sales.