With rising fears of the credit crunch and financial problems worldwide it is unsurprising that predictions for the property market in terms of sales are somewhat gloomy. Recently a report from an official body, the Royal Institution of Charted Surveyors (Rics) has stated that property sales could fall as much as thirty percent this year. In addition, Rics also released figures that property prices in general would fall by around five percent in 2008.
The consequences to this downturn may well lead to a fall in consumer spending, further worsening the financial situation. Purse strings have definitely been tightened in recent years and naturally sales as property, easily the most expensive investment anyone will make in their lifetime is experiencing the brunt of these harder times.
These are however purely predictions, property sales in recent years have been escalating at astronomical levels and understandably at some point this trend had to be bucked. Thankfully for first time buyers the fall in prices may well grant them access to the property ladder that had previously been denied. Sales of smaller homes and flats may in fact rise as those who have been waiting for a fall in property prices decide to buy homes for the first time.
Sales of these smaller properties may increase but it is dependent upon who will be able to sign up for mortgages. The rumblings in the American lending market have led to a record number of non-payments and repossessions; as a result, lenders in this country are now being more cautious with their money. While this will undoubtedly affect those who are trying to gain high percentage mortgages, those who have been saving for a number of years and have accumulated a considerable deposit may find themselves in the fortunate position of lower prices due to the reduced number of sales.
It is currently the case however that many new buyers, instead of buying property at the moment are waiting for even better prices before they decide to buy. While this may leave estate agents troubled, it does at least show a glimmer of hope that sales figures will improve in time.
The downturn in property sales is in no way endemic throughout the entire property market. While negative reports are estimating a fall of as much as a third in the coming twelve months, one market sector is in fact experiencing a golden age. Million pound properties are experiencing an upturn in sales not present in the rest of the property market. It is believed that over eight thousand properties worth a million pounds or more were sold in 2007. This figured is thirty six percent higher than the figures from the previous year showing that the property sales slump is not affecting all sectors.
Most of these million pound property sales occurred in the London area, particularly around the Kensington and Chelsea area, although areas of Surrey and even Edinburgh experienced record levels of sales for his type of property. Sadly for the property market in general these types of properties only account for around half a percent of the total sold, meaning that even though this particular sector is doing well the middling price range of properties is still suffering.
Property sales trends are however regional and London and the South East are still experiencing good sales levels whereas areas such as the Midlands are feeling the downturn more than most. The property market operates on a boom and bust cycle and after the years of plenty that sellers have experienced it is unsurprising that the bubble had to burst at some point.
Now that banks are having to repossess homes from delinquent mortgagors, some buyers are asking, "should I buy a bank owned property"? Even with years of real estate experience and knowledge, the best answer here is still: "It depends." Shopping around and knowing the particulars of each sale are still vital as they can vary widely from one house to the next. Arming yourself with some basic information on these types of transactions should also help to give you an idea of the risks and potential gains involved.
SHOP AROUND
Bank-owned or REO (real estate owned) properties can vary in condition from damaged to excellent, and be priced properly (at market) or be a great value. You just need to shop around. I have some clients that have found absolute gems priced 10% to 20% below market.
Even after you shop around though, there's still a fair amount of risk involved in buying this kind of property. Most of the homes in this category are sold in "AS-IS" condition. In some cases, you won't even be able to inspect the house before you buy it. Banks won't make repairs or be held liable for damages, mold or the like so be prepared to sign lots of addendums exonerating them from any responsibility after the sale. Also the bank tends to place a per diem clause that may cost you $100 per day if you're late in closing.
If you're prepared to accept these conditions, I say "Make an offer" and see what happens. Basically, there are three types of foreclosure sales:
AUCTION This is the riskiest way to purchase bank-owned property, but can also net the greatest financial gain. Some estimates say 25% off the original purchase price is common. If you want to play the auction game, you'll have to pay cash and you'll have to forego any kind of inspection. Auctioned homes are truly "AS-IS." There is also no way to avoid the fact that you are profiting from someone else's misfortune with this option. People who are losing their homes may refuse to move out or may damage the property in anger
SHORT SALE This isn't really a foreclosure sale, but a sale the homeowner makes in order to ward off foreclosure and do some damage control. Also known as pre-foreclosure, this is when you buy from a homeowner before the bank intervenes. You can inspect the house before you buy when you go this route, but be warned - many of these deals are stalled or squashed by the banks before they're closed.
REO This is when you buy a foreclosure from a real estate company. REO presents the least risk of all three options. You have clear title, right to inspect and can get your financing in line first. You won't get as great a deal as you could by buying at an auction but for many buyers, the reduced headache is well worth it.
One thing I can say for certain: banks NEVER want to own these REO properties, they just want to lend money and collect mortgage payments. When a property becomes bank owned, it's because the borrower has forced the bank to foreclose, that is it. What this usually means for buyers is a clear chance to purchase a home from a very willing seller.
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