Sub-prime crash?  Foreclosures rising?  Does it matter to me? 

There are many doomsayers predicting heavy defaults and foreclosures in the real estate industry, and a drastic price reduction as a result.  So for those of you living in north Texas, I want to share with you my educated opinions and my suggestions for real estate investment opportunities.  Is the rising number of foreclosures a golden opportunity for you or a time of dangerous wheeling/dealing and increased risk?

As usual, the truth lies somewhere in between.  Recent studies indicate that a single foreclosure may reduce the values of neighboring properties by as much as 5%.  Several foreclosures in one neighborhood, particularly marketed at the same time, can lower prices by as much as 10%.  Notice these percentages however.  In north Texas, we just really do not find foreclosed properties selling for 50% of their value, unless there are about that many repairs needed.  While it is true that lenders want to sell their foreclosed properties, not own them, it is also true that lenders receive multiple Broker Price Opinions and rarely sell for dramatically under value.  In north Texas, our market remains dynamic enough that they simply do not have to.

It is interesting, however, to understand the subprime market and it’s effect on certain areas of the country.  In McAllen, Texas estimates are that 26.8% of all loans are subprime loans, making McAllen the number one market in the country for percentage subprime.  However, it is interesting to note that as of March 2007, the highest percentage of subprime loans that were 60 days late were in Cleveland, Ohio and Detroit, Michigan.  In fact, while 2 of the top 10 towns with the highest percentages of loans as subprime loans are in Texas, none of the Top 10 subprime delinquency markets are in Texas, and that frankly is the statistic that matters.  If people with subprime loans are paying their mortgages, then there is no reason for just the presence of subprime loans in the marketplace to have any negative effects.

Make no mistake, however….foreclosures in north Texas and across the country are on the rise.  A total of 333 properties in Denton County, more the $64,000,000 worth of Denton County homes, were posted in April 2007 for the foreclosure auction.  This amount reflects a 20% increase from the 277 filed for the same month in 2006.  Through April 2007, 1,370 single family, townhomes and condominiums have been posted for foreclosure in Denton County, which is an 8% increase over the same time period last year.  There were 5,977 foreclosed homes on the auction block in Southern California in the first three months of the year, up from 711 in the same period last year, according to DataQuick.  The report shows that 6,624 foreclosures were initiated in Massachusetts statewide during the 1st quarter of 2007 (January, February and March), 76 percent ore than the number recorded in the 1st quarter of 2006."    Currently, only about 6 percent of the MLS listings in North Texas are identified as former foreclosures. 

For your information, foreclosure sales are conducted by lending institutions at the County Courts Building on the first Tuesday of the month.  Do not confuse tax sales conducted by the sheriff’s office with foreclosure sales.  Tax sales are conducted based on unpaid property taxes and foreclosure sales are conducted based on unpaid mortgages.  As you can imagine, the values can vary dramatically between the two types of sales!  Tax sales are held across the state on the first Tuesday of the month, but do not necessarily occur each month.  It is a good idea to go observe and be certain you understand the details of a particular sale as some have 100% of the purchase price due to the county by cashier’s check by 4:00pm on the day of the sale, with no payment plans accepted, and on others you may make a  5% downpayment and close within 30 days.  For the most part, you should have fully investigated any property prior to making a bid.  In the north Texas counties of Denton, Dallas, Collin and Tarrant, estimates are that 15% of properties sell for below market appraised value and about 12% sell for above the market appraised value, so you should certainly do your research before considering purchasing an auction property.  Only about 7 percent of the foreclosure auction sales in north Texas went to third-party buyers who bought the house on the courthouse steps, Foreclosure Listing Service found."   There are great deals to be found, but you frankly must have knowledge, time and funds in hand, to make successful auction purchases.  You can go online to http://sheriff.dentoncounty.com and click on Sheriff’s sale for property details in Denton County.

The Anne Lakusta Team is in negotiations with one of the area’s biggest companies for handling foreclosed properties.  It has been very interesting to learn that these companies have departments for purchasing properties that meet certain criteria, and then resell them.  It is considered one of their best profit centers.  That translates into fewer bargains reaching the open market for you and I, but means there are some out there at some point!  Remember, we are always here working in our markets on a daily basis.  If you are interested in real estate as an investment, then we can help!