Saturday, March 31, 2012

Top 1% Profits from Home Foreclosures

First they drove the housing bubble by flipping properties for quick cash, now they're cashing in again on the depressed housing market.

The Wall Street Journal reported that sales of investment and vacation homes has surged last year because investors and higher-income households are taking advantage of low home prices to scoop up bargains.

WSJ: "Also, hedge funds, private-equity firms, pension funds and university endowments are dipping into that market. The attraction is double-digit returns at a time when most bonds and other income investments yield very little. The most popular strategy is for a big investor to team up with a local company that scouts out houses and finds the renters. The hope is to flip the homes in the future when prices recover."

With many families now struggling with mortgage payments, the number of foreclosure homes for sale has increased dramatically. The housing market in recent time has seen a tremendous decrease in price, and to make the pot even sweeter, there is a huge selection of cheap homes on the market. These homes cover every price range and can be found in every part of the country. If a buyer wants a large country home in the Hamptons with lots of acreage, or just a small summer condo on the beach in Florida, this is the time to buy.

The reason the prices are so low, and a glut of houses are on the market, is because people have lost their jobs and can no longer afford their home. The owners of many of the houses have often been living on a limited budget for an extended period of time and may have not been able to properly maintain their houses. Re-financing is impossible if you're unemployed. (Obama Vs. Romney on Loan Modifications)

The $25 billion foreclosure abuse settlement between the government and five major bank promises that of the $25 billion, the banks will give $17 billion “in assistance to borrowers who have the intent and ability to stay in their homes." But more than half of that money can be used in ways that will not stop foreclosures. For example, the banks can wipe out more than $2 billion of their obligation by donating or demolishing abandoned houses.

In its annual survey of investment and vacation home sales, the National Association of Realtors found that the number of homes purchased by investors rose 65% during 2011 to 1.2 million, accounting for 27% of all home sales. While the majority of homes sold last year went to "traditional" buyers who plan to use the home as a primary residence, their presence in the market declined 61%.

During the housing boom, speculators were blamed for helping to inflate the bubble by snapping up homes, especially new homes, and then quickly reselling them as prices rose higher ("flipping") That led to overbuilding. Now investors are cashing in again by buying up excess inventory.

Real-estate agents say investors, and to a smaller extent vacation-home buyers, are outmaneuvering traditional buyers, who are less likely to have the financial means to pay cash for a home. The National Association of Realtors survey found that nearly half of all investors and 42% of vacation home buyers purchased their homes using cash. Traditional buyers, meanwhile, are seeing deals derailed because they can't qualify for a mortgage.

The Wall Street Journal reported that "unlike during the boom years, when many investors were buying properties to flip quickly for a profit, many of today's investors buy the homes with plans to rent them out and sell them when the market improves." (But isn't this also flipping?)

Amid increased demand from investors, real-estate agents say there aren't enough foreclosed homes in good condition available in some markets. Buyers are begging for properties - - there is an insatiable demand.

In another article the Wall Street Journal reported that with a large number of people losing their houses to foreclosure, more are venting their frustration by damaging and vandalizing the units before leaving. Also, some national reports show that one in seven homes are so badly damaged that they don't even qualify for mortgage financing, all because of vandals and thieves breaking in to destroy the homes. But even if the evicted depart with a smile, the abandoned houses, no matter how well boarded up, immediately attracts criminals and vandals.

A low budget house might need a substantial investment to bring it up to par. A fixer-upper is a great idea for a person who has the skills and cash to do the necessary repairs themselves. Although these problems have put a lot of first-time buyers off the idea of purchasing their first home (lack of cash, poor credit scores, job security, etc.), with the number of cheap homes coming on to the market, now is a perfect time to start buying if you have the cash.

Thirty percent of vacation-home buyers said they plan to use the property as a primary residence in the future - - the more affluent buyers can take advantage of low prices and low interest rates to buy their future retirement homes. It seems cheap homes are no longer just those that are located in the poorest locations. Due to the recession (high unemployment and the credit and housing crash) good bargains are also increasingly being found in many desirable locations.

For those looking to buy their first home, cheap homes being sold at auction, or via realtors due to foreclosure, they are becoming the affordable choice for many.

The New York Times reports that auction houses have been busy thriving with bargain hunters on foreclosed homes. People from around the world have scooped up houses that are often sold for less than half of the value of the mortgage. Compare that to a "loan modification" for current homeowners.

The recession was a godsend to the top 1%, and a "shared sacrifice" for everyone else.

1 comment:

  1. "Mortgage Write-Downs Get New Push"

    Fannie and Freddie back roughly half of the 11 million mortgages where borrowers owe more than the homes are worth. But any principal forgiveness program would be targeted to a small percentage of underwater borrowers—those owing at least 125% of the value of their property and who are behind on their mortgage payments. Economists who have studied the issue say the proposal could reach about 300,000 homeowners