A closer look at the real estate industry gives us pause to reconsider the market and look beyond the numbers to some less than rosy trends. For example, in today’s market, it is extremely difficult for individual investors to secure bank financing. As a result, those seeking to make a quick kill in the real estate market are tapping their savings and retirement funds to buy units with the goal of flipping at significant profits. Sound familiar? The only difference is that today, these amateur investors aren’t losing the bank’s money, they are losing their own. Once they make the purchase, many are finding they can’t afford the taxes, insurance, and fees. They frequently end up walking away – without their savings, without the ability to sell at a profit – and leaving associations in deeper financial stress. As in the past, investors are causing problems in the market. Hedge funds and private investor groups are starting to gobble up units with cash, simply because end users – those who will live in the units – can’t secure financing.
A recent housing report indicates in many markets prices are rising. For example, homes in Dallas and Denver have reached all-time highs. As we saw in the first decade of 2000, these high prices simply are not sustainable. People buying at these levels will quickly see that their homes will soon be underwater. Again, this is a situation that is all too familiar and it could lead to another bubble and more abandonments and foreclosures.
Another trend and one that misleads the general public are reports the foreclosure rates are declining. One major reason for this trend is judges are dismissing many of these cases simply because banks are dragging their feet in the foreclosure process. They are being thrown out of court due to lack of prosecution. They won’t appear “active” until they are re-filed. Keep in mind that banks may be delaying foreclosure proceedings because they don’t want the burden of taxes, insurance, and assessments. People continue to live in these units for free, another factor leading to financial problems for the associations. Likewise, many associations will not foreclose for the same reasons – it’s too expensive to own the unit.
Fannie Mae and financial institutions are also manipulating the market by not releasing “shadow” inventory because they realize that the demand would diminish as would current pricing levels.
Associations can do their part in avoiding another crash by continually analyzing their documents about the purchase of units by investors and the regulations regarding rentals. Boards should also encourage legislators to challenge the powerful banking lobby and move for timely foreclosures. It takes this type of vigilance as well as the ability to view current news with a bit of skepticism.