Vast Inventory of Underwater Homes Causing Lead Shortage
By Leon McKenzie
Professional real estate investors who are looking for properties have had a hard time finding a good supply recently. Market forces, issues with the overall banking industry and consumer perception have all created changes to the real estate industry that have certainly hampered the purchases of homes and other forms of real estate. These changes have made it difficult for real estate investors to find properties that fit the needs of their portfolio.
Underwater Homes Part of the Problem
You may have heard the phrase “underwater” used in the real estate market. What it means is that the value of the property is less than the amount that it was originally mortgaged for. This is common with homes that were purchased before the recession that started in 2008. For the homeowner, this means that they are prevented from many options that would allow them to move to a bigger home or even to downsize.
When a home is underwater, the owner, in order to sell the property would have to provide the gap between the sale price and the mortgage value. Most homeowners don’t have the financial wherewithal to come up with the thousands of dollars that it would cost to get out of a current property and move into a new property when they have to come to the closing table with cash.
Homeowners with properties that are underwater are also generally unable to refinance their homes as most banks require a full appraisal of the property before they will close on a new loan. When a home is underwater, the new appraisal will establish the current value of the home, which may be tens of thousands of dollars below where the home was originally appraised when it was purchased. This means that many, if not most, homes won’t be able to be refinanced.
What is the result? For the most part, homes that are underwater stay with their current owners until their mortgages are paid off because the owners can’t afford to sell them. This situation in the market is a direct contributor to the shortage of real estate in the market. Trey Garrison writes, “Redfin asks what’s causing the inventory crunch and what they found is that, according to RealtyTrac, more than 7 million homeowners can’t sell because they’re deeply underwater, meaning they owe more on their properties than they’re worth. That figure is falling as rising home values put more homeowners into the black, but those same price gains, coupled with weak wage growth and tight credit, are discouraging many from selling and trading up.”
Overall Inventory is Well Below Average
Due to the challenges with home values, there are fewer homes on the market than need to be in order to support a strong real estate investment market. Garrison said, “Nationwide, the total number of unsold homes rose 5.3% in March to 2 million, but at the current pace of sales, that supply would be exhausted in only 4.6 months, according to the National Association of Realtors. In the 50 markets Redfin analyzed, about 30% of unsold houses were fresh as of March 31, up from about 24% three years ago. In Charlotte, where the number of properties for sale is at its lowest in at least three years, fresh listings — those less than 30 days old — accounted for only 5.5% of Charlotte’s inventory as of March 31, also a low. Last month, only 55 new properties came on the market, compared with 225 a year ago.”
This is a phenomenon that is being seen all over the country, though some areas are better off than others. The shortage in real estate inventory means that prices are increased and real estate investors are having a much harder time finding properties that meet their budgets. Garrison goes on to say, “In Indianapolis, even a 26.6% year-over-year surge in new listings in March wasn’t enough to replenish depleted inventory. Inventory is so low in Oakland, Denver and Dallas-Fort Worth that fresh listings abnormally accounted for a larger share of inventory last month as buyers whittled away at less-desirable properties and builders raced to keep up with demand. Dallas-Fort Worth added more than 100,000 people between 2013 and 2014. Last month, there were 14,332 fewer properties for sale than in March 2012. New listings fell more than 27%. ‘All the desirable properties are getting snatched up in three days. The ones that are left become our stale inventory,’ Dallas Redfin agent Connie Durnal said. ‘It’s driving the prices up and increasing multiple offers. I don’t see it ending.’”
California is one area that is seeing both contraction and expansion in real estate inventory. Nick Nisperos writes, “Sales growth could be stiff where inventory is tight, experts said, such as the San Francisco Bay area. But in less expensive areas, such as the Inland Empire, demand will remain strong thanks to solid job growth in warehousing, transportation, logistics and manufacturing, experts said. John Husing, chief economist for the San Bernardino-based Inland Empire Economic Partnership business advocacy group, said sales are ‘gently rising’ during the economic recovery. ‘I think what is starting to come online a little bit more is migration from the coastal communities because a large share of the market has been priced out of the ability to buy anything,’ Husing said. ‘I think we’re going to start to see more of that migration with the economy of Southern California as a whole strengthening and the inability of a very wide percentage of the population to afford housing in Los Angeles, Orange and San Diego counties.’”
Certain geographical areas are seeing a rise in prices due to low inventory and other areas are more affordable. What is happening in California is typical of what is happening throughout the country.
Slow Construction Another Factor in Lead Shortage
The shortage of homes on the market has also been impacted by slow construction. Decreased construction means that there are fewer new homes for people who want to move into another form of housing. Construction has been slowed by a lack of demand as well as challenges for builders in finding financing in order to move forward with new developments. Garrison writes, “Builders haven’t kept pace, either. They’re breaking ground on 1.07 million houses, condominiums and apartments a year, but the U.S. requires between 1.6 million and 1.9 million new units just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.”
New construction is an important way for the real estate market to create opportunities for people to move. When enough new construction isn’t being created, then it decreases the overall amount of housing inventory for possible buyers and sellers, driving prices upward as supply slips. Memphis is a prime example of where new construction has taken a nosedive, resulting in fewer leads overall for the total area and forcing companies to take radical steps in order to continue to build. Not only is there shortage of homes being built, but a shortage of lots on which to build them. Amos Maki writes, “’The lot situation in Shelby County is getting critically low,’ said David Goodwin Jr., owner of David Goodwin Jr. Cos. LLC and president of the West Tennessee Home Builders Association. ‘We know what the problem is. There is very little coming online as far as new developed lots are concerned.’ Some builders, including Grant Homes, even waded into the development world, developing lots and other subdivision infrastructure that developers normally handle. ‘Quite frankly we’d rather be a homebuilder but right now we’re a developer, too, because we need lots to be able to build on,’ said Kim Grant-Brown of Grant Homes.”
With a slowing of growth of the economy, fewer lots to build on and homeowners that are underwater, the stage has been set for investors to struggle in finding new homes and properties to add to their portfolio.
Probate, Divorce and Bankruptcy Lead Sources Offer Hope to Real Estate Investors
Savvy real estate investors have come to the conclusion that current market forces are not that favorable in the traditional market. There are other ways to find properties that do fit within most investors’ criteria. Probate leads are one of the most popular and productive ways for investors to find homes and commercial property that can be purchased at a discount. When a loved one passes away, an Executor takes charge of dispensing with the personal property that has been left behind, as ordered by the court system. Due to the fact that items need to be sold to pay for funeral expenses, medical bills, taxes and unpaid credit cards, Executors are generally more than happy to sell property for thirty to fifty percent off.
Divorce and bankruptcy cases are another area where investors can take advantage of discounted prices. Like Executors, those going through a divorce or a bankruptcy may be ordered by the court to sell a certain amount of assets in order to complete the case. Many times, the owner is happy to let these go for a discounted price so that they can move on with their life. It is important to note that the language used in these types of purchase agreements may be different than the typical forms used. Check with your attorney to ensure that you are comfortable with the requirements of the court.
Finding Probate, Divorce and Bankruptcy Leads
Do you need to go to your local courthouse and spend hours digging through filings? Smart investors use a lead service to avoid this frustration and streamline the process. Professional lead services can deliver the results of a specialized search in your area directly to your inbox on a weekly basis, giving you the information you need to begin to evaluate these properties and connect with the individuals who are the current owners.
Using a lead service allows you to concentrate on the money making end of your business – evaluating properties, making deals and getting estimates completed. This is especially critical when you are starting your business. A lead service can provide you with a steady stream of viable, timely leads that will help you to find the best properties in the area to add to your portfolio. In addition to residential homes, a lead service can help you find businesses, vacation homes, vintage cars, antiques and other personal property that can be purchased and resold.
Get more information now! U.S. Probate Leads is the top provider of probate, divorce and bankruptcy leads. Contact us today for more information on how we can assist you with lead services as well as individualized training to help your business succeed. We offer webinars, seminars, books and even individualized mentoring to help you build your best business. Call today!
Sources:
http://www.memphisdailynews.com/news/2015/jan/28/lot-shortage-leads-to-fewer-new-homes/
http://www.housingwire.com/articles/33654-redfin-home-inventory-shortage-worse-than-it-looks
www.dailybulletin.com/business/20151009/housing-shortage-in-california-expected-to-continue
US Probate Leads
Leon McKenzie
Chief Operating Officer
Leon cofounded US Probate Leads more than 12 years ago and has witnessed its growth during that period from a one city lead provider in the probate space to the only national provider of probate leads for virtually every county in the country.
Leon likes to point out that US Probate Leads is the only company providing Probate-related Real Estate-related leads to Investors and Realtors based on data collected directly from individual probate courts in virtually every state. This has been achieved by building a National Network of Researchers that visit each county one time each month. Leon’s team processes this incoming data and makes it available to individual subscribers for their use in reaching out to highly motivated property sellers.
