Saturday, October 4, 2008

Repo “bargain” dumps at auction

London Evening Standard

I like how the media portray these dumps as bargains to be snapped up at auction, not pointing out they were over 100% over-valued in the first place and only gullable mugs who listen to Krusty & Pfhil bought them. This really shouldn't be an analysis piece, as no real analysis has been done. "Repossessions are rising sharply, forced sellers are desperate, and the vultures are circling. Homes bought for £500,000 just three years ago are going under the hammer for little more than £250,000."

Posted by doomwatch @ 08:14 AM (1367 views)
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12 thoughts on “Repo “bargain” dumps at auction

  • Blatant Evening Standard brown-noseing to a couple of its bigger advertisers trying to ramp up the interest.
    Strange thing is there is another article in the same edition which is bearish to the extreme.
    Here is a quote:

    Sale prices have almost halved, development land is worthless and those few people who want to buy can’t raise the money.

    This last is what passes for good news in the residential property market today; only 32,000 mortgages were approved last month, but frustrated buyers will be grateful, in due course, for being prevented from buying an asset which is falling in value, and still has a long way to go.

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  • Unless things have changed dramatically since last month, I don’t think it is accurate to describe auctions as standing room only with fast furious bidding. Most of the lots don’t get any bids at all, and those that do fail to meet the reserve price.

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  • And saying that US banks are not as experienced as UK banks on selling reposessed property is a bit cheeky. In Detroit, houses which were fetching $250,000 in the summer last year cannot even shift at $1,500 at auctions! I really doubt the auctions houses are buzzing with business, in the US or elsewhere.

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  • jonb- I totally agree.
    At the last few auctions I have attended locally, agricultural and paddock land are the only lots that have sold.
    All the houses and development land go unsold, there is absolutely no interest in them at all.
    You can view a good example of the kind of results at the link below.

    http://www.fishergerman.co.uk/uploaded/documents/Auction%20results%20-%2017th%20September%202008.pdf

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  • wdbeast – and where are those auctions? Im not being difficult but are you talking about sales in London? – (although i am in London, am only raising this because its the London Evening Standard article).

    Realistically “professional” BTLrts or cash rich investors will come in at some stage and undoubtedly and eventually the best place to buy will be at auction. If a property has fallen by 50% that means if its rentable without voids and all other things being equal the yeild must double, making it (in pure yeild terms) a good buy.

    Now the crux of that statment is if all other things remain equal. A flood of rental properties onto the market, plus a contraction in economic growth means the
    rents must adjust downwards. What looks like a good yeild suddenly becomes not such a good yeild. Other BTLrs who have bought at the higher levels see their yeilds cut and then to compete find they must lower rents. BUT at the same time increases in rates – eg Halifax increasing by .25% means that more of them get forced into marginal profitability at best. Those in marginal profit, realise the games up and must now try to de-leverage. Those in losses try to mitigate them. In either case more properties flood the market………

    So yes some investors will come in now, and yes thats a good thing, will they be found to be premature? Yes i think so, i fully expect a dead cat bounce to the upside in the next few months for the very reasons shown (first with prices stabiliasing at auction, and the retail market following) BUT this is the suck in.

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  • techieman – Of course I know what you say is correct, unlike London, my local auction market is not yet dominated by BTL properties.

    The results of auctions in my area of Leics/Northants borders merely shows that even at auction the expectations of the sellers is still too high, hence nearly all go unsold.

    It will be a different matter when repossesions start to come through in rural areas, as there will be a very low reserve, if any .

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  • Firstly Auctions
    Attended one myself 2 months ago in London. Most l;ots didn’t reach what Iwould describe as unrealistic reserves.
    And a house I was interested in was being repo’d by Halifax and IMO had a reserve a good 25% above a realistic price – The only 2 bids on it I believe were bounced off the back wall.
    So disagree with the article.

    techieman
    An interesting view point and also interested to see your timescale on your dead cat bounce scenario.
    Although they shouldn’t be, I think alot of the population are still in relative denial and can still justify to themselves that house prices aren’t/haven’t really dropped.
    To that end I’m inclined to agree that depending on how the US Bailout is portrayed in the media that some may see it as the end of the turmoil and use the Winter period to bag a bargain.
    There do still seem to be plenty of mortgages on offer for those with a deposit.
    I hope we don’t see any sort of pick up as I want us to reach the bottom as soon as possible. I don’t want a long slow drawn out process.

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  • wdbeast
    Not sure about the very low reserve.
    It’s my belief that the reason a repo is underway is the fact that the property in question will have a big mortgage against it.
    The banks will still be after recovering as much against that property as possible as getting it back from the mortgagees will be almost impossible, particularly if they’ve declared themselves bankrupt. Which with the sums involved and the ease with which people can do it now is the obvious outcome.
    We also have to remember that the type of people who MEW can sleep at night because unlike you and me I don’t think they actually care all that much and just live for the day with their head in the sand. We just pick up the bill as it looks like we’re about to do again.

    Anyway I digress. The best financial option for banks is to set up their own in house businesses renting properties back to either the current occupiers or new occupiers and re-sell in 10 years or so when markets improve.
    That’s what an entrepreeur would do. The only difference is in the tricks of accounting and the short termism of Banks Directors because of their bonus structure.

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  • Some interesting points. IMO next year will see the effects of the present crises realised in the auction rooms of England. Check out http://www.propertyauctions.com/ for a reasonable list of auction houses. The percentage of unsold lots at auction has increased over the last year and can only get worse until sellers adjust the net realisable value of their property.

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  • str 2007 – Reserves, fair point, but it depends how many reposessions come to market.
    I think there will be a lot coming on in about a years time, that is when the prices will plummet, just after techieman’s DCB.

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  • Please do not buy any property until the price is equal to the cost of the land and the base cost of the building materiels. That will be the time to buy. When you buy your 3 bed detached for £80K make sure its where you want to live . The markets will not improve in ten years time or fifty years time. House prices will remain in line with wages. Wages will go down over the next ten years. That will be caused by supply and demand of labour. The middle class will revert back to working class where they truly belong. The country will be much better for making a return back to the 1950s.

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  • wdbeast
    Yes under normal circumstances I’d agree, but and it’s a big but, in a years time we are 8-10 months away from an election and as things stand the USA have given themselves the right to print money at any price to try and prop things up.

    Gordon Brown will be doing anything to win the election and he will be reckless, because if he looses he will want to leave a good mess for the Conservatives to clean up. He has nothing to loose now and is dangerous.

    So expect every possible bailout to be going into full swing in about a years time to make things look good leading upto an election. Not much point in them wasting amunition yet.

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