I have noticed an interesting development over the past week  amongst buyers for bank owned REO homes.  Firstly, as mentioned in a previous post there seem to be a lot more buyers.  A few months ago, when I would make an offer on a bank owned property I would usually be the only offer. Occasionally the bank would come back and ask for a “highest and best offer” which meant that there may or may not be more than one interested buyer. Many times there were no other buyers but the asset manager at the bank wanted to try and get as much as possible for the property.

Now, I am seeing a completely different picture. I am putting offers on bank owned properties and being outbid many times on many different properties. The interesting thing is that my offers are in some cases very close to list price and I am still being outbid. In fact, many of the bank owned properties are going over list. I offered $43,000 on a property that was listed at $44,900 and someone outbid me and the property went for $47,000. There is a feeding frenzy going on right now at the lower end of the market (the cheapest entry level homes). This makes sense if you think about it because potential landlords are finding tremendous cash flow opportunitites at these price levels. For example a $40,000 house with a tenant paying monthly rent of $800 is great cash flow.

On February 6th, Fannie Mae made a surprise announcement. Fannie Mae decided to rescind the 4 property limit on investor properties. Before the credit crisis, Fannie Mae used to allow investors to own up to 10 investment properties. During the crisis, Fannie cut this limit down to only 4 properties. Ironically, while interest rates plunged and homeowners rushed to refinance their mortgages investors were essentially “barred” from participating. Why? Because if they owned more than 4 properties they could not get a mortgage. Ironically investors with excellent credit and able to submit to full doc loans were being prevented from getting financing. Well this is no longer the case. On February 6th, Fannie Mae went back to the 10 property limit.

What does this mean to you and me? It means that not only are there cash buyers at the cheap end of the starter homes but there are also mortgage buyers now. Competition for bank owned properties just became even more competitive because there are cash buyers AND mortgage buyers. More buyers and declining inventories equals less supply of housing.  You are witnessing the bottoming out of the real estate market. It is happening right now. It is very subtle and is only happening right now at the bottom end of the market with the cheaper homes. But it will gradually transition up the pipeline. Type in your zip code and sort the properties from low price to high price. The properties on the first page are the ones that investors are looking at.   

Here is a link to the Fannie Mae announcement:

 https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0902.pdf