Art Delao, 30, can't seem to find his way into this real estate market. Five months ago, the Roseville, Calif., case worker at a social services agency decided, after years of renting, that housing prices had finally bottomed. Since then, he has made offers on four foreclosed or distressed-seller homes. And while two of his offers were above the asking price, none have been accepted. He is not the only one being rejected. Of the four houses Delao has considered, two remain unsold. He made his most recent offer in late August, and is still waiting to hear back from the seller's bank to find out if it will be approved. "Seems like it is just screwed up all around," says Delao. "It's a great time to get into the real estate market, but the process to go through is often ridiculous."
Across the country, buyers are finding the current "buyer's market" increasingly frustrating. Realtors say wait times for deals to close have gone up, and more and more buyers are walking away, even when they find prices attractive. "Banks are a mess," says Dawn Connelly, a real estate investor in Palm City, Fla., who, despite dozens of offers, has bought only six houses in the past year. "They take months and months to accept an offer and aren't typically willing to make deals."
Sure, there are signs the real estate market may be turning. In September, home sales across the country rose 1.4% from their level a year ago, which is the first annual increase in that measure since November 2005. In some areas of the country, where prices have fallen dramatically, like Fort Myers, Fla., and Sacramento, Calif., sales are up much more than that. But nationwide, the pace of purchases are still 25% below where they were three years ago. And the number of homes on the market waiting to be sold, 4.3 million, is still up 1.3 million from three years ago.
Distressed sellers are the biggest problem. According to the National Association of Realtors, nearly 40% of all houses on the market today are owned by sellers who are either behind on their mortgage or owe more than their house is worth. Banks have to approve deals in which the sale price is below the mortgage owed, often called short sales, and bankers are not typically eager to go for such sales because they result in losses for the lender. Realtors, even the ones who know how to work their contacts at banks, say it takes at least two months, and sometimes as much as six months, to hear back from a bank about whether they will approve.
Nicholae Blanchard, an agent in Cape Coral, Fla., says she has been waiting for a year for a bank to approve one deal. In all, she has completed 10 short sales on behalf of buyers or sellers this year, but she says things have been getting slower lately. She's had only one deal approved in the past two weeks and that was for a vacant lot. Two other deals were rejected. Blanchard says banks and investors are dragging their feet to see how the government bailout will benefit them. "The bank negotiators told me they are doing fewer short sales right now because investors think they will get a better deal from the government," says Blanchard. "But my guess is those owners are headed for foreclosure."
Beyond short sales, buyers are also walking away because banks are requiring higher down payments and credit scores. Mortgage rates, too, which have recently been rising, are keeping buyers out of the market. "I had one buyer recently walk away because they had 10% to put down, but the lender wanted a 20% down payment," says Barry Miller of Denver-based Buyer's Only Realty. "She said she would save more and come back in a year."
Art Delao says he plans to stick it out until he gets a house. He made his most recent offer six weeks ago of $255,000 on a three-bedroom, two-bath house. He is still waiting to hear if it will be accepted. "It's like going to a restaurant and ordering your food, and then waiting three months until it comes out," says Delao. "Now interest rates have gone up. By the time they approve my deal, I probably won't be able to afford it."