Many investors are caught between a rock and a hard place, saddled with unsaleable properties. Instead of appreciating nicely, with a good profit in store, the value of their real estate investments are instead dropping like rocks, leaving them in a quandary, as was the case with a group of investors in the rental market in San Diego.
The group toyed with a number of possibilities: condo conversion-conversions, condo reversions and even apartment conversions. Pinnegar, executive director of the San Diego County Apartment Association, isn't sure if they ever pinned down a final moniker. But he does know that everyone in the business is asking what's going to happen to all the people who jumped on the condo conversion bandwagon in San Diego, only to find a sinking condo market at the end of the road. (“Condo Conversion-Conversions”, Will Carless, staff writer, Voice of Sand Diego, 7-24-06)
The mortgage and foreclosure crisis, which is currently chewing up the nation’s real estate market has uncovered deep faults in the industry. According to an on-line version of Atlantic magazine, there is quite a lot of variety in the types of cities, structures and neighborhoods struck by the foreclosure mess, so much, in fact, that whether foreclosure is a catastrophe or minor crisis depends much on the nature of the mortgages being foreclosed.
Meanwhile, as the lights go out in condos and homes around the nation after a visit from the foreclosure squad, many so-called vulture investors say, don’t blame us, we provide a necessary service. So-called vulture investors say they are a necessary part of the real estate food chain, even going so far as to say there aren’t enough of them to “clean up the market.”
Between 2006, the start of the sub prime meltdown, and 2007, over 165 lenders have closed there (sic) doors due to poor business decisions. What happened to all their loans? Larger institutions purchased them at pennies on the dollar. These big banks and others were not looked at as vultures. It was simply accepted as common business practice. Now those institutions have to foreclose on all the nonperforming notes they bought and try to sell the properties at auction. What happens if no one buys them? What if there are no vultures to come and solve the problem? The more money the banks spend on their properties the less money they have to lend. Eventually they will go out of business and possibly send the country in to a recession. The “carcasses” will rot away, and feed no one. That where the Vultures come into balance the food chain. Traditionally Vulture funds were set up to help the rich get richer off the miscalculations of others and you would need a minimum of 1 million dollars to take part - because that’s what the market conditions called for. However, now we are in a new age; the age of the Vulture. The market is saturated with deals. The game calls for more players. (foreclosure blog)
Many who can still afford their homes continue to pay their mortgages, despite living in neighborhoods with far too many vacant, foreclosed properties for their comfort. They know what the real estate agents know: foreclosed properties in their neighborhoods decrease the value of their own property. To heap more coals on this roaring fire, foreclosure is an infection which contaminates whole city blocks, entire neighborhoods.
One of the most dangerous side effects of foreclosure, residential foreclosure in particular, is the effect that abandoned, foreclosed homes/property have on the surrounding neighborhoods. The boarded up, empty, abandoned properties, by their very presence, harms the neighbors of people in foreclosure, even those who aren’t having trouble making loan payments.
According to one academic study, every foreclosure reduces the value of all other houses within an eighth of a mile by about 1 percent, as the sight of vacant property scares off potential buyers. Combine that with a market already in decline, and neighborhoods that begin to have troubles can go off the cliff. On the street pictured, three houses not in foreclosure have been languishing on the market for 72, 97, and 149 days; asking prices along the cul-de-sac vary widely, but average about $40,000 less than the comparable prices in the first two quarters of the year. (Ibid)
From a "vultures" point of view, dive on in, the water's great. Despite the foreclosure glut, there are people, institutional investors, who have billions of dollars in investment capital available. They are on the prowl, looking for good real estate investments, yes, even in this market. And they are searching for a “good deal”—with cash in hand.
(Jack) McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., said investment groups with capital "in the multiple billions" are already active in South Florida, searching for fire-sale prices on properties with good long-term prospects. (Washington Post, 10-20-07)
To top it all off, and throw more blood in the water, the fact that the major players keep falling out of the trees like iguanas in a South Florida cold snap makes the game all the more exciting and profitable for those who have the money to buy. As of today, rumors about a potential bankruptcy by a major player in the mortgage industry abound.
The LA Times is reporting of rumors that Countrywide may file for bankruptcy protection.
Countrywide Financial Corp. denied Tuesday that it was considering filing for bankruptcy protection, but its stock price collapsed on widespread rumors, falling to an 11-year low. The Calabasas-based company, which cut more than 11,000 jobs last year, was pummeled by the bankruptcy speculation and Wall Street gossip that its debt would be downgraded by one of the major bond-rating firms. (LA Times, 1-9-08)
The bloodletting in the mortgage industry continues and the vultures are waiting in the wings. As one analyst put it: the problem is not just centered on urban areas, in neighborhoods full of subprime mortgages sold to poor and minority homeowners. There are trillions of dollars worth of risky loans out there, and untold numbers of vulture capitalists waiting to invest in the fallout.
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