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Why Are There No Bank Repos?

Almost every week, I get a call from someone saying, “I’m looking for bank repos but I can’t find any for sale.” My short answer is, “There are none for sale and you’re not going to find any in this market.” Here’s why.

According to the National Association of REALTORSĀ®, 24% of the homes sold in 2012 were bank repossessions. The very next year in 2013, that number dropped down to only 14% and by 2015 bank repos dropped to approximately 8% of the overall home sales in the United States. This was because the economy was turning around, people had good jobs again, plus more and more homebuyers were pouring back into the real estate market.

As a matter of fact, the very next year in 2016, the Kansas City real estate market turned back into a seller’s market for the first time since 2004. A seller’s market is a real estate term, indicating that there are more real estate buyers in the market than there are sellers. When demand is higher than the supply, home prices increase, which benefits sellers.

Over the past five years home values in Kansas City have grown by 51%. That’s a lot of equity in the home, so why would someone walk away from that and give their home back to the bank? Even if a homeowner lost their job today and needed to sell, they could sell it under market value and still walk away with a big chunk of cash. That’s the number one reason why you won’t see any bank repos anytime soon.

Ok, so what happens if the real estate market has a correction? I get asked that question a lot too. According to the S&P/Case-Shiller composite-20 home price index, there was a 33.3% drop in home prices in the United States from Q2 2006 to Q4 2011. This was a record breaking recession for home prices and one that we will likely not see again during my lifetime. The market conditions were completely different during this time. Lenders were doing 100% financing loans for many buyers and too many homeowners were taking out HELOC (home equity line of credit) loans using their home equity as if it was a cash account, spending money on consumables outside their home. When the market turned south, many people were quickly upside down in their mortgages. If they lost their jobs and were forced to move, too many of them didn’t have the cash to make up the difference between what they currently owned and what the home was worth, so they walked away and gave their home back to the bank.

Today, home lenders are more conservative. They require a higher credit score to get a home loan, a reasonable work history, and DTI (debt to income) ratios are required to be much lower than they were 10 years ago. In short, lenders want to make sure the homeowner will be able to make their home mortgage payments. Even if someone does get into trouble and gets behind in their mortgage, lenders today have options available to most homeowners. Contrary to popular believe, the bank does not want to foreclose on your home and they’ll do everything possible to help you through a temporary situation if you just pick up the phone and call them.

In 2020, during the pandemic, home prices still rose an average of 10.2% in Kansas City. Many people needed to sell because they were taking a job in another state. Some of them just bought their home within the last two years. They listed their home with a REALTORĀ® and after paying commissions and related expenses, were still able to walk away with more money in their pocket. For there to be a flood of bank repos hit the market, housing values would have to drop by 33% overnight. If that were to happen, we’d have bigger problems to worry about than the value of our homes.

Having said all this, there are actually some bank repos on the market today. As of this writing, there are five of them on the market. All five are under $50,000 and in such poor condition you’d have to pay cash for them because no bank would give you a loan. They’re basically tear-downs and in really bad shape. Also, all five are in small towns located miles outside the Kansas City area. Typically not the kind of bank repo that most people want to buy.

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