Two topics dominating real estate headlines over the last couple of weeks have been Foreclosure Rates and Subprime Lending. This post deals with foreclosures and the other various stages of financial distress regarding home ownership such as pre-foreclosure, short sales and bank-owned and how it's affecting Eastern Loudoun County.
First a definition of the four common terms used by real estate professionals when talking about financial distress:
- The main one is Foreclosure. In layman's terms, this means that the owners of a property fell behind on payments and the bank or mortgage company has decided to sell the house to pay off the loan. There are plenty of other more comprehensive definitions, but you get the point.
- Pre-foreclosure is a term used to describe a situation where the owners have fallen behind and the bank or mortgage company has started the process of foreclosure but has not yet auctioned it off. The owners are trying to sell the property before the bank actually forecloses.
- In some cases the owner tries to sell the house before foreclosure but the house is no longer worth as much as the loans on the property. In this instance, the owner is trying to do a Short-sale. Sometimes banks will authorize this if the costs for foreclosing are more than the loss that will be incurred in the Short-sale. It's sometimes the lesser of two evils.
- Bank-owned property are also known as Real Estate Owned (REOs). These are properties that have gone through the foreclosure process and an auction, but neither brought anybody willing to pay more than what the bank was willing to pay to protect its original loan. Therefore the bank bought the house and is now trying to sell it.
Now the question is how many of these distressed properties are on the market here in Eastern Loudoun County and what effect does that have on real estate market values.
In Ashburn, there are about 22 homes that are in one of the various stages of distress. This represents about 5% of the total listings. A closer look at the properties shows very few of the homes appear to be priced significantly below market value. And when considering that most of these properties have an AS-IS clause that precludes the seller from making any repairs, the prices are very much in line with current market valuations.
In most cases the list prices of the distressed properties are actually higher than other properties and because of this they are lingering on the market for hundreds of days. This can be attributed to a number of factors. Agent knowledge, market conditions, property conditions, seller indifference, etc.
A closer look at the properties shows a number of interesting facts. The list prices of the distressed properties in Ashburn range from $309,000, 
up to $1,195,000 with no price range being inundated with distressed properties. There are also no more than 5 distressed homes in one community so the properties are not concentrated geographically within Ashburn.
The level of distressed properties in both Sterling and Leesburg is approximately 60. This represents almost 10% of the available listings in both areas. Also, 60% of the Leesburg distressed listings and over 70% of the Sterling distressed listings are priced below $400,000. This indicates that many of the first time buyers who tried to stretch in order to get into a house during the boom have found the payments are now beyond their means.
Fortunately, first time buyers make up about 40% of the buying activity so these properties will more than likely be snatched up by the next wave of first time buyers. Or investors who have been on the sidelines for much of the last 2 years will step in and establish support.
Short sales are looking even better right now. I noticed the inventory is raising locally. Might be a good thing for investors.
Posted by: Cedar hills real estate | December 31, 2007 at 07:09 AM