Proficient Note Buyers
  • Blog
February 25, 2008
Not In My Backyard!
I hear it every day - noteholders who are convinced the property they sold in the last two years has increased in value since the sale. Not to burst any bubbles, but the statistics aren't in their favor.

Certainly, prices in certain parts of the country have declined much faster and farther than others. California, Florida, Michigan, Ohio - these states have seen skyrocketing foreclosure rates and double-digit price decreases in recent months. The bad news isn't limited to the states that make the headlines, however.

By the end of this year, as many as 15,000,000 households will be underwater on their mortgage. That is, they will owe more than their house is worth. Almost 40% of people who purchased their home in the last two years already owe more than they can sell it for. This doesn't bode well for anyone, regardless of where you live in the country.

Getting back to the noteholders who swear prices are still going up where they live: The median sales price nationwide dropped almost 6% in 2007 versus the previous year. Some regions were higher, some lower, but ALL reported price drops. Sure, there are small pockets in this country that are seeing flat prices, and even minimal price increases. The problem seems to be the disconnect between what was two years ago and the reality of today. Most people just don't want to come to grips with the prospect they are losing equity in their properties.

I had a conversation with one of my neighbors late last week. He threw out a number that he thought we could sell our houses for if we decided to. (our houses are very similar in all respects) When I asked him what his basis for his estimate was, he mentioned the sale of another neighbor's house from June 2006. He didn't take into consideration the four other houses that sold in late 2007 and the early part of this year. Nor did he factor in the fact that the one house still for sale in the neighborhood has been on the market for 15 months. This particular property has had its asking price dropped no less than six times. Today's asking price is almost 20% less than the initial listing, and it STILL HASN'T SOLD. Needless to say, after I gave him my two cents, he sheepishly modified the estimated value of our houses downward.

I won't fault anyone for refusing to alter their preconceived notions that home prices only go up. That's been the culture of the U.S. for the last several years. Most people don't spend every day in the business, tracking trends, reading the lastest economic reports, etc., like I do. I simply try to remind everyone I deal with that the market price of anything has nothing to do with what somebody thinks the value is. The market price is determined by what a willing buyer agrees to pay and a willing seller agrees to accept.

Right now there are over 4,000,000 homes for sale in the United States, or over ten months' worth of inventory at current sales levels. Many of these homes aren't selling because the sellers still think they're worth more than prospective buyers are willing to pay. My challenge to everyone is a simple reality check, painful as it may be.

Our business is buying discounted real estate notes. A transaction can only happen if the value of the property is sufficent (versus the amount owed on the note) to make us comfortable that the buyer has enough invested, and has adequate equity, to want to continue to make payments. Lenders nationwide are getting "jingle mail" everyday from homeowners who have given up and mailed back the keys. Are you at risk, as a noteholder, to the same market forces?

Regardless of how you answered the question in the prior paragraph, we'd like to help you. Even if the property you sold has decreased in value since the sale, we'd like to discuss your note and see if we can offer some options to get you cash now. The best solution may be to sell part of your note - please see our website where it describes partial purchases.

As James Arthur Baldwin put it so succintly, "The price one pays for pursuing a profession, or calling, is an intimate knowledge of its ugly side." As I stated in my very first blog, our goal is to keep our readers informed. Trust me when I say we are constantly on the lookout for good news. Unfortunately, good news is rare these days, especially with regard to real estate. My intent is not to be a killjoy, but to share some introspection from someone who is in the trenches every day. I'd love to paint rainbows and sing happy songs all day, but to borrow another quote, this time from Benjamin Franklin:

"The only thing more expensive than education is ignorance."

Make it a great day.


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