Fire Sale! When More Come In, Than go out.

Great News! For those of use who have been waiting for the banks to live in the real world, it's starting to happen. As I have been predicting for the last year in my foreclosure seminars and newsletters- when more foreclosed properties come in than go out (sold in foreclosure auctions) - Prices will fall dramatically. "Foreclosures, Falling Prices Sprur Pr. William Home Sales," headlined the front page Washington Post article, Friday Oct. 17. It was the second article in a month highlighting what the newspaper referred to as the "greatest home buying spree the region has ever seen." This is the fire sale phenomena we had discussed in my foreclosure seminars. One of the buyers quoted in the article must have been reading my mail. He said, "Bargain-hunting investors are the best hope for stabilizing foreclosure-ravaged neighborhoods."

Sales in September had increased by 253 percent over September '07 - mainly because lenders dropped the price on the REO stock by an average of $130,000. Banks in northern Virginia choking on a glut of empty foreclosed properties dropped prices and sold 1116 single family detached houses - 118 homes were sold for less than $100,000. One Price Williams agent said to the newspaper reporter, "It's ridiculously busy. People are looking for amazing deals, and i'm writing offers as fast as I can." At this point, the impact is mostly Prince William, but the article did make reference that Fairfax County is starting to move in the same direction. Detached single family house sales in Fairfax County were up 71 percent after the median price dropped 24 percent. This is just a harbinger of things to come. In sourthern California, September year to year house sales were the best in 20 years according to the Investor's Business Daily. Quoting the financial newspaper, "More than half (69%) were bank repossessed homes...priced 33 percent lower.

Watch the next 6 to 8 months and get ready for a new real estate heyday in REO's. With marked activity on both coasts it soon will become nationwide. Keep an eye on the Maryland suburban counties, especially Prince George's and Montgomery (less zip codes for Bethesda-Chevy Chase and Potomac). They have the highest number of foreclosures in the state. Were it not for Maryland legislating an extended foreclosure event time frame (from 15 to 135 days), I believe Prince George's County would have set the first fire sale environment. Licensing, Labor and Regulation, Secretary Perez, warned that foreclsoures are expected to rise in the near future as this was only a "de facto moratorium." Mortgage resets for Prince George's County were expected to average around a 1000 per month from August to December.

Why has the fire sale scenario taken so long when the government's Resolution Trust Corporation (RTC) successfully cleared the real estate shelved of excess stock during the Savings and Loan Crisis and brought the market back to equilibrium? I believe there was extensive lobbying against it by the financial services industry. Lenders overvalued property and underestimated losses, and then complicated the issue further by clicing and dicing mortgage into complication derivatives. No one really seems to know how much money is tied up in toxic financial paper. Although, the federal government seems to be getting a "tip of the iceberg" idea as AIG, the insurance giant that insured many of the default swaps based on mortgage-back securities, has already used up much of its $123 Billion rescue package and is looking for more money from the government's lifeline, while the FDIC says a bigger mortgage fix is necessary for the banks. My guess is that wiser heads in some of the banks are starting to see that even the U.S. Treasury has limited patience. If I were a betting man, I'd say fire sales will fill the void.

Now ask yourself, are you ready to handle buyer representation? Yes, there is a fifference. Since I am not one to turn down accolades, let me shre with you the feedback from some of my former Virginia students. Considering, I've only been teaching mainly in Maryland and the District, the Virginia students in my continuing education and "Principles" classes have been limited - maybe a dozen or so after several years. Eleven of my former students contacted me to thank me for focusing them in the right direction on successful REO negotiations in the Prince William County housing frezy. Their claim to fame - they picked the right clients and prepared properly, beating out other agents who were not versed in distressed properties. Particularly, their investors beat out first-time home buyers; their home buyers - with some hammer and nail savvy - stole properties that needed some fix-up and TLC at bargain basement prices; and were able to compute true market value, including interested party contributions, and calculate market rents plus the required surplus - for the PITI on the rental accommodations. If you're interest in brushing up for the next round of cut-rate REOs, stay tuned to my schedule of 6 hour, hands-on mentoring classes on buying and selling foreclosures and buyer representation from PDI.