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December 21st, 2009 8:34 AM by David W. Welch
I think a lot of people fear the next wave of foreclosures like it is a tsunami that is going to come in and wipe out the rest of the value in the real estate market. I look at foreclosures coming on the market as more of a steady stream. The foreclosure process occurs as a series of events, and at the end of that process the property is placed on the market for sale. When they first started coming on the market, it was like turning on a hose. First, it came in squirts and air pockets. Quickly, it was flowing freely at a full continuous flow. To continue this analogy of a stream of water through a hose, I'll ask you to remember when you were a kid drinking from the hose. If you don't remember doing that ask your parents.
When you first turn the hose on, a lot of times the water that first came out was warm. You had to let the hose run for a little bit to get to the cold water. This is also a lot like our foreclosures here in Orlando. The first wave, if you will, or water out of the hose was made up of homes that flippers walked away from. Many of these were new or nearly new homes in great condition. Also like the first water out of the hose these foreclosures leave a bad taste in your mouth. These were homes going back to the bank because someone was trying to make a quick buck on them. This kind of activity fueled the boom, but created the bust when the inventory of homes grew much faster than it could be absorbed. The bigger the boom, the longer the hose sitting out in the sun full of warm water.
Once the warm water gets through the hose, the cold water from the well starts to come through. There are often some more squirts and air pockets, but then it is back to full flow. This water will flow until someone cuts it off through government intervention or the well runs dry. At this point the source of the water is related to the depth of our unemployment. We are looking at a pretty deep well right now with unemployment figures in the double digits. Recently, we have had more positive news regarding employment. This helps at both ends of the hose. As employment improves the well will start to run dry, and the better able the market is to absorb the foreclosures coming out the other end. Efforts to aid short sales and loan modifications also help to restrict the flow, but so far they have not been very noticeable. Of course, some of the banks have kinked the hose during the holidays, but it when they release it we will be back to full flow almost immediately. Hopefully, the well of foreclosures here in Florida is like our actual water table. It is very close to the surface, but does not run very deep. I am looking for much better employment numbers by the end of the first quarter, and the beginning of the end of drinking out of the hose.
Orlando Real Estate, David Welch Real Estate Optimist, As Seen on HGTV's House Hunters