🏚️ Foreclosures Up! Crash!? 💥🚗

Greetings, real estate aficionados!

Welcome to another edition of Real Estate Gone Wild. Let's talk about preforeclosures - the key to unlocking your next bargain deal or your next emotional rollercoaster ride.

What are preforeclosures, you ask? As a mentor once told me, the 3 Ds of foreclosures are death, debt, and divorce. Basically, they're properties owned by people like those featured on just about any reality TV show - they’re in a bad place and there’s nothing to do but watch the car wreck unfold.

These sellers are often in pain - financial and emotional - and they just want to sell their property and get out of their misery. Sometimes they're even selling short, which means they're trying to sell the property for less than the debt on the property. In other words, they get nothing, and the lender has to agree to take a loss to do a short sale. Talk about a sad ending to a bad situation.

So how do preforeclosures affect prices? If enough preforeclosures flood the market, they can start tanking comparable sales and pulling down the price expectations of buyers. Just like a really nice home selling for a premium price can help all the neighbors sell their properties for a bit more, preforeclosures selling at a discounted price will erode the neighbors' ability to command as much for their property if they sell. It's like a domino effect of misery.

Now, let's take a look at our market. Preforeclosures have been steadily increasing over the last year, thanks to all those folks who deferred their mortgage payments during COVID and were in trouble anyway. Foreclosures are normal, as articulated so sophisticatedly in the cliche "sh*it happens." You know who else said that? Mohammad, Jesus, Buddha, and probably your grandma (perhaps with different word choice though).

So if foreclosures are normal, when does it go from being the right amount to too much? When is there enough distressed inventory that it's capable of shifting market trends? It’s amazing how patterns repeat - distressed real estate is like pizza. You can have some, but too much and your trend will start shifting.

During the Great Recession, the Reno market bottomed out in the spring of 2012. But that happened because distressed inventory flooded the market in late 2006 which started pushing values down. As you can see in the chart below, our market functions well and healthy around 100 foreclosure filings a month.

If we see filings start to creep up or even pop off, this should definitely be watched like a horror movie where you know something bad is going to happen, but you don't know when.

In conclusion, the number of preforeclosures in our market seems healthy and normal for now. There will always be people getting foreclosed on, and a certain amount is healthy. But if the trend accelerates and compounds, it can be a strong indicator that prices are going down. So let's keep an eye on those preforeclosures and hope that our market stays as healthy as a kale smoothie.