Why a Big Drop in Foreclosures Could Spell Bad News

The results of 2013 are in and the numbers may surprise you. The associated press is reporting that foreclosures in California are at an eight year low. Most people would view this announcement as overwhelming good news but this shift in the market could bring some unfortunate happenings after all. Here’s 2 reasons why a big decline in foreclosures could mean bad news:  

#1 – Fewer houses means higher prices.

The rules of supply and demand mandate that as the supply of houses decreases the price of the houses for sale must increase. This means as fewer people fall into foreclosure there will be fewer “short sales” and bank owned REO properties which are famously known for their deep discounts which used to mean getting a great deal on a house. Now, with fewer foreclosures these types of great deals will be that much more difficult to find.  

#2 – FSBO vs INVESTORS

Real Estate investors have been spoiled by this market since 2007 in terms of finding really great deals. After the housing crash investors could find cheap properties a dime a dozen almost anywhere they looked. Now, with fewer foreclosures investors will be forced to look to their next favorite “pool” of great deals which are the properties listed for sale by owner or FSBO. Investors will come in to the FSBO market like raiders making “all cash fast close” offers and if you’re in love with the same house but you need to close in 30 or 45 days because of your “bank loan” guess who’s likely going to get the “contract”? The investor’s cash is like a bird in the hand in the eye of the homeowner; you’re offer to close in a month or so with a mortgage loan is like a bird in the bush. They’re not going to risk it and wait on your bank.   Now it’s over to you. Have you ever sold a home FSBO and received multiple offers?