Property Auction Blog

It’s no secret that new housing sales suffer from the same difficulties challenging the real estate industry in all categories. Long drawn out transactions make both seller and buyer suffer needlessly. Alternatives exist with tangible financial benefits for buyers and new home sellers alike.  Real estate property auctions offer satisfaction for both sides. We predict builders and buyers will increase their use of real estate property auctions as they experience the results and value of this service.

According to an Associated Press article at MSNBC,  D.R. Horton, CEO, Donald J. Tomnitz, reported that his company will build 35 percent fewer homes this year and will struggle to find buyers for much of their inventory.

The U.S. Department of Housing and Urban Development issued a February press release covering new residential sales estimates for January 2007,  20.1 percent lower than January 2006 sales estimates. They go on to say that the current inventory, “… represents a supply of 6.8 months at the current sales rate”. Their prediction makes for a long wait for sellers to hang on for market adjustments.

Auctioneer, David V. Johnston, President of the Fort Lauderdale area Hammersmiths Auctioneers Inc., sounds optimistic about the role that real estate property auctions will play in the future for home builders. He features a new construction offering that languished on the market with a broker for over three months. He says this well respected new home builder holds additional inventory that he expects to auction if the April 14th auction goes well.

Johnston feels that there maybe enough new housing in his market area to meet the need for several years with construction of townhouses and condominiums still going strong. As a result, Johnston sees more interest from builders and feels that auctions offer builders “good margins for their efforts”, even in a slow real estate market.

We asked Mr. Johnston if he expected the seller to offer any special concessions due to the slow market and he replied, “No, not yet although there is always room at the auction to include incentives from the seller. Due to the local situation buyer discounts are possible”.
He still sees new home builder real estate property auctions as a growing trend in his area. “Yes, absolutely things are going to get better and better for auctioneers”, according to Johnston.

Builders are increasingly turning to real estate property auctions across the country and their ability to turn inventory into cash quickly. With Hammersmiths Auctioneer’s new home auction just weeks away, Johnston said the paint was drying, “as we speak”. Good construction planning matched with a well timed real estate property auction adds one more reason to check into this increasingly popular way to clinch the deal and leave buyers and sellers smiling at the end.

The controversy swirling around subprime mortgage lending has grown so intense in recent months that it has escaped the confines of the real estate industry, attracting widespread media attention and prompting a congressional investigation.

Those who support subprime lending argue that this practice makes the dream of homeownership possible for the credit-challenged buyers who comprise a growing percentage of the American population, while also boosting the national economy in the process. Opponents of subprime lending believe that these practices exploit the poor and other marginalized groups, also arguing that the economic gains fueled by subprime mortgages may prove to be short-lived and illusory.

Recent regulatory changes in the once strictly-controlled mortgage lending industry have given rise to an array of questionable lending practices, according to industry analysts. Most alarming is the increasingly common practice of approving credit-challenged buyers for interest-only loans without considering the buyer’s ability to cover the full interest and principal payment that will apply after the introductory period.

At the current juncture, it is estimated that as many as 12-15% of all subprime mortgages that have been granted in the last two years have already entered the foreclosure process. According the Center for Responsible Lending, an industry watchdog group, the foreclosure rate for subprime mortgages could skyrocket to nearly 20% by the end of 2007.

No matter which side of the subprime lending debate you agree with, one thing is irrefutable — the current crisis in the mortgage lending industry is likely to result in a flood of foreclosed properties that will be heading to auction in the near future. In some major metropolitan areas, it is now common to see 3,000-4,000 foreclosed properties hit the auction block each month, a significant increase from the per-month averages seen even a year ago.

If there’s a silver lining to be found in all of this, it may be that the increasing rate of auctions could offer unparalleled opportunities for investors adhering to the age-old formula of “buy low, sell high.” The sheer variety in the stock of properties now available in many areas of the United States will likely benefit investors who focus on this niche market.  Auctioneers will also be afforded an increasing amount of opportunties to assist the lending industry in the disposition of assets in the accelerated format.  Where in the past, lenders depended on a very tight network of brokers to sell the assets, now they will need to move these properties at a much quicker pace. Lenders have found that real estate auctions are the most efficient method of doing this and are using this option more and more.

Also, although the current situation looks grim for subprime lenders, most experts expect that the long-term damage to the housing market and the larger economy will be minimal. In a recent interview, Roger Cole,  director of the Fed’s banking supervision and regulation division, reported that little or no “spillover effects” related to the imploding subprime lending market had yet been observed. Indeed, many industry observers contend that a return to more stringent lending practices will probably prove to be a net benefit for the housing market’s long-term earnings and stability.