Discounted Competition About to Enter the Market?

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For the past several years, I’ve been hearing about a backlog of homes that were waiting to be released to the market. Most of these homes are banked-owned, and are currently sitting in the banks’ pipelines. The graphic above from The KCM Blog shows you what that situation might look like.

I’ve never been a fan of government interference in the marketplace. Whether it was the $8,000 tax credit or the currently-artificially-low interest rates, the housing market can’t truly recover until Uncle Sam stops trying to ‘fix’ it. In this instance, however, government interference is helping prevent a total market collapse.

Imagine what would happen if the banks were allowed to suddenly flood the market with all those foreclosed homes. Those properties are typically sold at a discount, which works to drive down property values in the surrounding neighborhood. If you were trying to sell your home, and there were two or three similar houses in the area selling for 10-30% less, you would likely have to discount your home’s price in order to get it sold.

I’ve always maintained that we’re extremely blessed here in Lincoln. Our market has slowed, and we haven’t been immune to the recent changes in the housing market, although we haven’t experienced the dramatic drops like some other cities. However, the number of default notices filed in Lancaster County in the past year has risen substantially. I don’t know if there’s a 47-month backlog of homes in our area, but the pipeline is definitely full.

Will the floodgates open anytime soon? I wish I knew! It would surprise me if those properties were all suddenly released to market, simply because current real estate values would plummet. The economy is still fragile, and a sudden influx of foreclosures into the market would be a big push in the wrong direction. Those properties are still there, though, and they’ll need to be sold at some point. The banks won’t hang on to them indefinitely.

If you’re a buyer looking for a good buy in the year ahead, know that there will be opportunities for you. If you’re considering selling, be ready to prepare and price your house to compete, not only with the traditional listings in your area, but also perhaps with some of these bank-owned properties.

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