The Sacramento Bee has a excellent article on the dynamics of the real-estate market in the post-bubble environment (also known as the housing depression). Sacramento housing prices, like many housing markets on the East and West Coasts, increased much faster than household incomes, a result of the inability of supply to keep pace with demand and speculation. Now, dozens of homes are going on the market at $25,000 or less as banks try to unload them after foreclosure:
Many of the houses became cheap only after the roller-coaster ride of the past few years, as banks sought to unload inventory. On Tuesday, for instance, Deutsche Bank lowered the price on a vacant, 728-square-foot home on 21st Avenue in the heart of Oak Park from $29,000 to $19,000.
The house had belonged to the same family for years. An investor purchased it for $197,000, or $270 per square foot, in mid-2005, property records show.
The city around that time declared it a dangerous, vacant nuisance and started pressuring its owner to clean it up. That case remains open, much like the cases for 200 other vacant buildings (all viewable at sacbee.com/databases)deemed dangerous or substandard for more than a year.
Seven months after buying it, the first investor sold the property again to another out-of-town buyer for $255,000, or $350 per square foot. In December, Deutsche Bank foreclosed. Today, the home is selling for $26 per square foot.
Now, months after banks initially foreclosed, these homes being put back out on the market. At the lower prices, the homes are both affordable and in sync with market demand. The housing market is rationalizing.
Importantly, the private real-estate market is ready to step in and turn coal into gold:
Real estate investor Reggie Lal is happy to oblige.
"At 25K, the risk is out of the market," Lal said. "It's pretty much bottomed."
What Lal does arguably has a more positive impact than speculators who bought $400,000 homes during the boom and sold them for $500,000 a few months later, pricing out regular folks who were unwilling to take on a high-interest loan.
During better times, Lal, who maintains an office for his firm, RL Financial, on the edge of Elk Grove, mostly focused on selling homes he bought during the last bust. Because he buys all his property out of foreclosure, he said, banks, not homeowners, get hurt by the low prices.
After finding a property that interests him, Lal pays cash and starts putting more money into the property. On a $25,000 house, he might add $15,000 in rehab, he said.
When the house is ready, Lal often puts it up for rent. Once he finds a tenant, he can find financing, he said, because the home is habitable and occupied. That rent is likely to cover the entire cost of his house payments – and more.
Then, it's just a matter of waiting until the market improves.
Lal said he's careful to keep his properties maintained, and city records support that contention. Not only does he want them ready to sell, but should tenants become unhappy and leave, he would have to pay financing costs.
Lal has bought at least a dozen low-price properties during the last year, property records show, and sold several after rehabilitating them.