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REO Nos. Drop – Are Investors Ready for Change?

Fannie Mae and Freddie Mac recently reported favorable information on foreclosures and bank real estate owned or REOs.  Specifically, both lenders reported declines in their overall REO Inventories; Freddie Mac reported a more than 30 percent decline in inventory, while Fannie Mae reported more than 32 percent drop in inventory – as compared to Q2 2015.

Fannie Mae and Freddie Mac also confirmed their REO inventory levels are now below the levels last seen in 2007 and 2008.  Fannie Mae realized a commendable drop of more than 70 percent from its 2008 inventories, where Freddie Mac is now sitting with an estimated 80 percent drop in its REO inventories since 2008.

What this Means for Markets:

The drop in the REOs of 2 of America’s largest home lenders is giving the residential real estate market the notion that banks now understand the importance of working with homeowners by providing principal reductions and modifications. Yet these numbers only represent the banks’ ability to move foreclosed homes (non-performing assets) from their balance sheets to real estate markets via successful sales.  This sub-market, engineered by banks to facilitate a leaning out of their balance sheets, subsequently created a niche for investors and savvy market professionals to develop a solid revenue stream in a non-traditional market.

The market niche unfortunately is coming to a new transition point as banks are now reaching sustainable and industry acceptable levels of REO inventories. The result – a smaller amount of REO properties being available to the recently create sub-market, potential forcing the return of a more traditional real estate market.  From this transition, banks will generate new obstacles to both investors and homeowners by instigating a negatively correlated market shift – via a lower foreclosure rates and a more reserved accounting of non-performing assets held on their balance sheets.

Changes for Investors:

For investors, this influx of previously non-performing owned assets gave many professionals the ability to acquire and package REO properties, and flip them at a profit.  Investors now are realizing this dance is coming to a close (at least for this economic cycle).

Savvy investors, specifically those who profited through the Recession, should prepare for a potential return to a more traditional market.  The traditional market may be several months out, if not more, investors who do not proactively begin considering options for re-aligning their portfolios [potentially] to a more traditional market might see their revenue streams run dry.

Homeowners Potential Return to a Traditional Market:

For homeowners and local real estate agents, however, this transition will bring a much need turn.  As a general practice with REO sales, banks do not utilize agents to list or facilitate the sale of a residential property Moreover, homeowners also suffer by way of listing price fluctuations created by each bank’s ability to sell property at a discounted rate – driving the average home price in a particular market lower, which in turn harms traditional sellers.

Thankfully, agents and homeowners alike should begin to see a flattening out of the market, resulting in more traditional transactions – in place of the discounted REO sales of the banks.  Allowing for the return of the age old real estate questions…what is the commission rate(s) I need to cover to complete my sale?

Selecting an agent and broker that can assist you in evaluating market trends as well as your property’s value is key. For market sellers and investors, Schwartz Realty is that professional.

At Schwartz Realty, we can help you understand the best course of action and guide you through the process with ease. Let the some of the top realtors and agents in Las Vegas help you make the right decisions. For more information or to set up a consultation, give us a call today at (702) 485-1400.


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