I have noticed an interesting trend in the Birmingham, Alabama real estate market. The trend involves the segmentation of the market in various areas, but mainly where foreclosure activity is prevalent. I noticed it most recently in the Centerpoint area of Birmingham. The segments include the following:
- foreclosures
- “normal sales” and
- flip properties
The “normal” sales are being negatively affected in an interesting way, and I will tell you how. There is a larger than typical (I guess that’s relative in today’s market) percentage of foreclosure homes that have sold over the past 12 months. Over the last several years the Birmingham market has consistently had 30-40% of sales be foreclosures or short sales. From February 2011 to February 2012 the Centerpoint market has had approximately 70% of the homes that sold be either foreclosures or short sales. That is an astonishing number, but one that indicates it is ripe for the picking by investors who want to buy, renovate, and flip the property for a profit. It appears that is exactly what they are doing.
Many of the flip properties are being listed and sold for below the market, so they will move quickly. That is where the problem for the “normal” properties comes in. They have to compete with true foreclosures that are being sold by the banks at rock bottom prices and also the flip properties that have been renovated and priced higher, but still not as high as what a “normal” property might be listed at. A homeowner wanting to sell their house will have a hard time competing with this. It seems like the forces of the market will require sellers to price their homes below the flip properties (since they are usually not in as good of condition, unless they have also been renovated recently), which will drive property values down. This phenomenon will probably begin to reverse whenever the percentage of foreclosures have been reduced, but we really don’t know when that will occur since there could be more shadow inventory waiting to come onto the market. Have you seen anything like this in your area? What has been the outcome? Let me here your story by leaving a comment below.
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