Will Market Improvements Spell Trouble for Existing Home Sellers?
By Robert Strader on March 28th, 2010
It doesn’t sound like it makes sense, right? How can things get better but spell trouble for home sellers? Or maybe you’re reading this and asking "How can you even say they are getting better?". Before I get into any potential problems, let me start with the point about things getting better. Things are trending in the right direction, albeit at a very slow pace, but signs of recovery are there.
Signs of Improvement
Current inventory levels are down approximately 40% from the 2007 market peak. Even with the flow of foreclosures, there has been capacity to consume those distressed properties. In the first Qtr. of 2009 distressed sales made up nearly 38% of all home sales in Metro Atlanta. That number is now around 25%. Most sellers on the market today either need to sell or have the equity necessary to sell at current market value. Property owners who would normally be on the market just to "see what they could get" or toying with moving, generally speaking, aren’t out there.
The fourth Qtr. of 2009 was the first quarterly increase in units sold over the past 2 years, showing a 14% increase over the previous year. And we are seeing an increase in the RELO client. This data in anecdotal but our team alone has worked on several deals over the past 4 weeks involving RELO clients. Companies are moving their employees and the properties we’ve been looking at are disappearing fairly quickly.
So Where’s The Problem? – Mortgage Delinquencies and New Construction
Rising mortgage delinquencies will ensure that we will have foreclosures and short sales in our market for at least the next 2 – 3 years. As you can see in the chart to the right {click chart to enlarge}, courtesy of calculatedriskblog.com .
It appears that delinquencies may have dropped slightly from their peak, but unless some of the programs being implemented by the government and banks actually help homeowners and slow that process, then it could possibly begin rising again.
When the market tanked, new construction fell off a cliff, and we’ve had literally no new construction for the past 2 years. But now builders are grabbing developed lots at great discounts, new home starts are showing up and the sounds of hammers can be heard in more than a few communities. Most of these locations are in Forsyth County but over the summer we’ll see construction begin in some stalled communities throughout Alpharetta and Milton.
Buyers tend to gravitate towards new construction when available. That coupled with the fact that buyers are also looking for great deals (foreclosures) I think some pressure could be felt by the normal equity owner looking to move-up, down or relocate, due to the increased competition with new construction…along with foreclosures. That said, I think any pressure will be short-lived. As the economy and the housing market continues to improve, competition will increase for sought-after communities and school districts, ultimately putting the re-seller back into a stronger position. Of course the product they have to offer can always set them apart, which is why we are seeing well priced homes in good condition and locations sell quickly despite the current market.
Am I on target or off base? Let me know what you think….
I am not sure how you found that picture of me stuck between New Construction and Forclosures [sic] but I respectfully request that you respect my anonymity and remove my picture.
Thanks.
I was trying to keep that a secret….you’ve outed yourself!
And God knows, outing yourself in Alpharetta is a big no-no!
My HOA passed an ammendment 2 years ago capping the number of properties in the neighborhood that can be leased out at any one time.
We are at that limit? However, I would like to / need to “lease” my property.
I’ve perused many resources. I’m not a lawyer but the only “loophole” I can possibly see is:
1. Enter into a “contract” to sell at some arbitrary future date, just as you would if for a legitimate transaction.
2. Enter into a Temporary Occupancy Agreement, allowing “buyer”/”tenant” to legally occupy the property even though they do not yet “own” the property. Legalese says this is not a landlord/tenant situation and is not a lease, and by (my) strict interpretation falls outside the framework of any leasing covenants of the HOA.
3. As a stop gap measure, receive in writing a legal option to buy the property back for the same amount stated on the contract in “1′. In consideration, pay some nominal amount for the option.
Such a headache. Wondering what my exposure would be. If I were the one wanting to lease, I’d also be skeptical of this type of “transaction”.
Any thoughts appreciated.
Dave, your situation is pretty common in the current economy and I know of some communities myself that have a higher than normal lease/rent ratio. Legally I don’ t think you have any options other than those you’ve outlined, but an Attorney would give you a definitive answer. I think most HOA’s facing this issue would have a hard time denying an owner the option to rent in an economy where selling may be difficult.