"4 weeks and then all hell breaks loose"

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I would view banks as any other publicly traded company. They report earnings by quarter. Right now they see "pent up demand" (I hate that term BTW) in the multiple offers they get for every low priced REO they've got. As the end of quarter or end of year comes, more homes will be dumped to a willing and overeager market. This should help their quarterly and year end profits. Builders do this all the time. Banks are no different.



My .02c



Soylent Green Is People.
 
Ignoring the 15/530 comment, I like this part of that article:



<blockquote> It aims to spend about $100,000 per home, including rehab, and rent them out for $1,200 to $1,500 a month. Then it hopes to sell them for $200,000 each in five years.</blockquote>


Never mind the attempt to double their money, that's a lot of cash flow-at $1,500 a month, they will recoup their entire investment in only five and a half years (excluding taxes, repairs, and insurance). That's a great deal, if it actually works out in the real world like that.
 
It is never going to work out in the real world like that.



1. rents are going to decline as all these 'investor' houses come on line.



2. economy in these outlying areas is in the crapper, and will be for a long time as they formerly relied on salary earners doing long commutes. why do a long commute if you can buy something lower priced near to work.



3. deadbeats
 
There are going to be a whole lot of investors who are no longer going to be investors. They will become defaulters and equity losers.











The experienced sharks do not move at the first smell of blood. The experienced sharks are patient and wait until the less experienced have panicked, and then the more experience move in and eat everything, including the smaller sharks.











The experienced sharks are still circling.
 
[quote author="freedomCM" date=1249365001]It is never going to work out in the real world like that.



1. rents are going to decline as all these 'investor' houses come on line.



2. economy in these outlying areas is in the crapper, and will be for a long time as they formerly relied on salary earners doing long commutes. why do a long commute if you can buy something lower priced near to work.



3. deadbeats</blockquote>


I think the best play, rental wise, is to find an inexpensive four bedroom house near a major university. Put down pergo instead of carpet, budget a little for repairs and maybe some summer vacancies, charge a fairly high rent but less than four times what a dorm room costs, instant profit. A bedroom in an actual house with a yard and a garage and a kitchen beats a shared dorm room any day of the week, IMHO, so there should be no shortage of tenants. This only works in cheaper markets with large colleges near them, of course.
 
[quote author="awgee" date=1249367242]There are going to be a whole lot of investors who are no longer going to be investors. They will become defaulters and equity losers.











The experienced sharks do not move at the first smell of blood. The experienced sharks are patient and wait until the less experienced have panicked, and then the more experience move in and eat everything, including the smaller sharks.











The experienced sharks are still circling.</blockquote>


You've just described the show I'm currently watching on The Discovery Channel.
 
my realtor has also told me essentially the same thing, well maybe not hell breaking loose; but she did say that there will be plenty more options coming down to my price range towards the end of the year, as long as i am willing to wait for it..
 
[quote author="tmare" date=1249136670]I don't know about that, seems like a lot of wishful thinking on the part of several realtors on the site you linked. I do know that things are weird out there...</blockquote>


Something is happenning. Honestly, this is how it felt when the market started to turn down originally. The market just felt 'off' somehow like it was holding it's breath...



I don't think 5-10% up from here is totally out of the question. I'm starting to want to cover my housing 'short'...



What do you all think?
 
[quote author="niklos" date=1249519735]my realtor has also told me essentially the same thing, well maybe not hell breaking loose; but she did say that there will be plenty more options coming down to my price range towards the end of the year, as long as i am willing to wait for it..</blockquote>
I think your realtor is right, inventory has nowhere to go but up.
 
Doesnt this "hells breaks loose" all assume that banks will simply flood the market?



The Pittsburg 15/530 mix is an example. Sure you have a backlog of properties, but at at the end of the day land is still an asset and with enough capital banks can look to the long run and bleed of a few at a time.



If they flood the market not only will basic supply/demand the will kill their own selling prices ... but other "on the edge" properties that havent quite gone under will be pushed over the brink. A fire sale may clear some of thier current stock at reduced prices, but the market value drop will also put more REOs back into the inventory as more owners go underwater with sinking prices and walk away.



Barring a going out of business bank sale (and even then they would not flip to individual investors but sell a portfolio to another institution that is unlikely to fire sale as well) I think you will see these REOs carefully dribbled out over the next 5 years with never too many released at any time to avoid instability. Anytime the market starts to turn weak they can pull the REOs back out of list and firm things up with a supply shortage temporarily.



Its like the 8000 OC properties in shadow inventory mentiond on this board. I doubt that banks suddenly forgot they had them and didnt list them. They are off the market for a reason. Somewhere in some dark basement is a dude with a spreadsheet and abbacus deciding how many and when to place stuff in to the market.



There will be some deals for those with good cash and solid financials that are quick, but I dont think "Mr Normally priced out of market" is going to find a sudden windfall of cheap property.
 
[quote author="Shade" date=1249655711]Doesnt this "hells breaks loose" all assume that banks will simply flood the market?



The Pittsburg 15/530 mix is an example. Sure you have a backlog of properties, but at at the end of the day land is still an asset and with enough capital banks can look to the long run and bleed of a few at a time.



If they flood the market not only will basic supply/demand the will kill their own selling prices ... but other "on the edge" properties that havent quite gone under will be pushed over the brink. A fire sale may clear some of thier current stock at reduced prices, but the market value drop will also put more REOs back into the inventory as more owners go underwater with sinking prices and walk away.



Barring a going out of business bank sale (and even then they would not flip to individual investors but sell a portfolio to another institution that is unlikely to fire sale as well) I think you will see these REOs carefully dribbled out over the next 5 years with never too many released at any time to avoid instability. Anytime the market starts to turn weak they can pull the REOs back out of list and firm things up with a supply shortage temporarily.



Its like the 8000 OC properties in shadow inventory mentiond on this board. I doubt that banks suddenly forgot they had them and didnt list them. They are off the market for a reason. Somewhere in some dark basement is a dude with a spreadsheet and abbacus deciding how many and when to place stuff in to the market.



There will be some deals for those with good cash and solid financials that are quick, but I dont think "Mr Normally priced out of market" is going to find a sudden windfall of cheap property.</blockquote>


Interesting perspective.
 
[quote author="Shade" date=1249655711]



Its like the 8000 OC properties in shadow inventory mentiond on this board. I doubt that banks suddenly forgot they had them and didnt list them. They are off the market for a reason. Somewhere in some dark basement is a dude with a spreadsheet and abbacus deciding how many and when to place stuff in to the market. </blockquote>


I used to work in Special Assets and can tell you with great certainty that is NOT the case. The special asset guy is buried in the dark basement, making reports, sending them off to top managment, waiting for somebody to say "okay, NOW".
 
Whether the guy in the basement or the "top management"... it is a deliberate decision. Ultimately it is not up to them either, as banks' power to keep the REO inventory depends on their access to continuous financing. Liquidation value is much smaller than going concern value. By flooding the banks with money, the Fed has averted the liquidation valuations imploding the economy. The effect on inflation is to be determined... get a seat, open a beer, and watch...
 
[quote author="earthbm" date=1249684873]Whether the guy in the basement or the "top management"... it is a deliberate decision. Ultimately it is not up to them either, as banks' power to keep the REO inventory depends on their access to continuous financing. Liquidation value is much smaller than going concern value. By flooding the banks with money, the Fed has averted the liquidation valuations imploding the economy. The effect on inflation is to be determined... get a seat, open a beer, and watch...</blockquote>


Thats kinda my thought ... if they were going to do a fire sale it would have happened already, instead they are now treading water. If banks can hold on with a slow release of REOs that doesnt crush the supply side of the market they should be in much better shape. If they flood they cut their own throats ... but everyone seems to assume that banks will commit financial suicide in a year? Or be forced to act against their own interests?



So what am I missing?
 
[quote author="Shade" date=1249655711]

Barring a going out of business bank sale (and even then they would not flip to individual investors but sell a portfolio to another institution that is unlikely to fire sale as well) I think you will see these REOs carefully dribbled out over the next 5 years with never too many released at any time to avoid instability. Anytime the market starts to turn weak they can pull the REOs back out of list and firm things up with a supply shortage temporarily.</blockquote>




This would work if all of the REOs were held by one bank (hello Countrywide!), but in fact, the inventory is spread over a large number of banks, some with quite small inventories, and others with huge numbers (BofA). Even if there was monopolistic collusion between the large banks (a risky strategy after all the limelight from the bailouts), the smaller players would want to take advantage of the free ride established, and sell their inventories.



I think this is the fatal flaw to your "roll it out slowly" thesis.
 
Okay I can buy that ... the traditional flaws in collusion would suggest that from textbook economics.



Except we are what ... almost two years into the burst bubble now? This means either there is collusion, smaller banks are incompetant, or that the cost of transaction in terms of paperwork and such is an additional barrier that prevents them?



Maybe they dont want to claim a loss yet, but if not now then why would they dump in 6 months or a year? As someone who is considering getting into the market I am just trying to understand the logic of "batten the hatches here comes a flood of property" opposed to slow controlled trickle.
 
I'm personally not in the camp of people thinking that the banks are going to 'dump' huge numbers of REOs.



Rather, I think they will ratchet up the FCs, from say 500/month to 1500/month. But I think that the effect of this will be huge. It won't take many months of that to exhaust the "investors" and the buyers who have saved up a big down payment.



After they are exhausted, then inventory will build slowly and steadily. And to move the product, prices will fall, slowly and steadily.





So no "big bang", but a death by a thousand cuts...
 
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