Re: Not a tidbit-Long - Posted by PaulNM
Posted by PaulNM on November 19, 2000 at 12:43:07:
I think Lonnie type deals are facilitated by a distressed market. Some (perhaps to many ) thoughts and experiences follow.
Are the various market segments tightly coupled? Distressed new homes, dealer liquidations, and cheaper good repos are big ticket CASH items. Even at fire sale prices they are still more expensive than the $1-2,000 cost of homes for Lonnie type deals. However, because of the rising vacancy problem at the parks here (ABQ) they have gotten much more willing to let homes stay and/or less demanding on what can be moved in. Rising credit standards force more people to the seller financed arena. Finally, there is a subset of the population that doesn’t have much money but is smart enough not to buy into these over priced, over financed deals. There are a lot more $100 dollar bills circulating on the poor side of town then the rich side. Conclusion: Lonnie deals are facilitated in down markets.
Human factors modify the effects of economic change so cause and effect may take a LONG time to develop and the process is often counter intituitive.
There is an area east of ABQ (Moriarty) that has been in a slowdown for the last three years. Most dealerships have closed and those that are left mostly sell repos. I would estimate that some subdivisions have 20% or more of the homes vacant.
You would think supply and demand would make prices under these circumstances drop like a stone. It hasn’t.
The usual pattern is this. Homeowner gets in trouble for some reason and lists the property for sale with a Realtor. However, it has to be priced to pay closing costs and the existing loan. Since an individual is selling it there are no dealer financing incentives and a new bank loan with hard terms will be required. If they bought with a low down and thirty year terms the sellers are probably under water if they have owned it for less than ten years.
The finance companies know this so if the owner manages to make an occasional payment and/or is activly trying to sell they probably hold off. A year goes by and the owner finally gives up and leaves. Now the foreclosure process starts, but the finance company staff is very busy, and really would rather not have the loss realized on their shift anyhow, so another year goes by.
Once they have the house back, the finance company remarketing department takes over and they sell to anyone who can fog a mirror, with nothing down and payments the buyer hasn’t a prayer of making. The buyer lasts from spring to fall (heating bills and bad roads kill those deals in the winter)and the process repeats.
Eventually the wholesale repo dept. gets the house and sells it to me. I recently bought two, a 1987 and a 1985 for $1,400 (total) where the previous owners debt totaled $20,000.
This whole process can take years and in the meantime you drive around and see all these nice homes getting destroyed by vandalism, neglect and the weather. But if you can locate the owner you find they are still priced at retail + 40% !!!
Conclusion: Supply and demand is an interesting concept, but human factors can really confuse the path the process takes.