Buyers Pounce on Deals as Homes Go on the Block

This home auction phenomenon (http://www.nytimes.com/2007/10/22/us/22auction.html?_r=1&hp&oref=slogin)will without a doubt help lenders rid themselves of unwanted properties. However, this auctioning off of properties may also (1) drive down housing prices since theses auction sale prices will go into the mix when appraisers are looking for sales comps, and (2) leave the foreclosed borrowers facing significant deficiency claims. Both may very well just help the downward spiral continue. Here are some highlights:

MINNEAPOLIS, Oct. 21 — In a down real estate market, they came to buy. They came early, they came in numbers and they came with bank checks for $5,000. By 10 a.m. Saturday, more than 700 people filled a hall in the convention center here for what real estate agents say is the largest auction of foreclosed properties ever in Minnesota, with more than 300 houses or apartments for sale in two days. Opening bids ranged from $1,000 — for a three-bedroom house — to $729,000, for a five-bedroom house on 11.9 acres. The crowd was standing-room only, with more waiting to enter. Some were looking for homes, others for investments.

“It’s a symptom of the foreclosure crisis,” said Jim Davnie, a Democratic state representative in Minnesota. Mr. Davnie said he had concern that areas already hit by the foreclosure crisis would now be hit by investors buying properties to rent them out, “which makes neighborhoods less stable than owner-occupied housing.” But in the loud, overcrowded hall, the misery of subprime loans, exploding adjustable rate mortgages and slumping sales meant one thing: opportunity.

The Washington Post also has a good story on the spreading problem (http://www.washingtonpost.com/wp-dyn/content/article/2007/10/19/AR2007101901089.html?nav=hcmodule). Here are some highlights from that story:

Call them grave dancers, vulture funds, turnaround specialists or the more euphemistic "opportunity investors." However you identify them, the deal is the same: When hyperactive real estate markets lose their sizzle, or property owners no longer can afford to hang on to their houses, well-capitalized investors smell blood and move in. That's happening in most of the "bubble" areas of the country that saw heavy speculative activity and razzle-dazzle financing from 2001 through 2005. But it's also happening in less volatile markets where unaffordable mortgages and economic distress are producing record numbers of panic sales to investors at fractions of former values.

At one recent auction, McCabe said, investors walked away with three-bedroom condos for $300,000 that originally sold for $550,000 to $675,000. Though not all units are selling at giveaway prices, he says, Miami is an example for overbuilt, overpriced condo markets that were dominated by speculators during the boom, many of whom have simply sent back the keys and left.