Frenetic House Hunting Might Lead to another Foreclosure Crisis

June 18th, 2009

Attracted by heavy discounts and all time low real estate prices, frenetic house hunting has started and might lead to another foreclosure crisis. Also fueling shopping frenzy are tax incentives and low interest rates. There are all types of buyers in the market – first time nest builders as well as investors and second time house hunters.

The housing market has not stabilized with foreclosed units and short sales weighing it down heavily. Jay Butler of Arizona State University (Real Estate Centre) said, “There are good opportunities, but you have to be very cautious.”

Bob Bemis of Arizona Regional Multiple Listing Service commented that nearly two thirds of the houses on the shop shelves have come from the foreclosure category repossessed by the lenders. The worth of these distressed units is less than the loan amount. It is these that have created a mood of unpredictability in the real estate market said Brett Barry of Realty Executives.

The real estate market is now opening up opportunities for many but it is not as easy as it sounds. Barry explained, “You have to be prepared to close, with your financing in place.” The buyer planning to make a purchase has to be ready with cash or some kind of solid credit. Even then there is no guarantee that the deal will sail through. Thus one needs patience and stamina. Expert’s advice is that the buyer should come ready with a pre-qualified loan and or cash in the pocket.

The banks selling the units are ready on the spot with loan applications forms. They will give additional discounts if the loans come from them. However this is not mandatory.

The buyers should also be ready for competition – stiff competition as in the days of the housing bubble. The earnest money required has often to be something more solid than a mere token gesture. Barry said, “In some cases, people are making $5,000 to $10,000 in earnest-money payments.” He warns that in the instance of REO units the money advanced might be forfeited if the buyer backs out after preliminary inspections.

Some of the foreclosed houses are unlivable. Previous owners and vandals have stripped them of everything that can be yanked off. Only the structure remains and that too might be infested with termites and moulds. Some need to be demolished totally. The value then comes down to the worth of the land.