Government owned real estate (GEO’s) coming to Phoenix
September 21, 2008
What’s a GEO you ask??? will its my made up word to replace REO (bank owned real estate) to GEO or government owned real estate, and GEO ’s, 
will be coming to the Phoenix , Scottsdale area real estate near you.
Phoenix, Arizona saw massive residential construction from 2001-2005. The staggering growth in of new home communities in Greater Phoenix, Peoria, Glendale, Mesa and Fountain Hills has resulted in an over-supply of homes as unqualified buyers and inexperienced real estate investors who had hoped to sell the Phoenix area homes at a quick profit are facing short-sales, foreclosures and bankruptcy.
The expected result having occurred is that banks, not historically in the business of owning Phoenix area real estate, have foreclosed on these worthless loans and have become owners of REO (bank owned real estate).
As we all know by now, after a horrific week on Wall Street, the Bush Administration led by a proposal from the Treasury Department offered a plan that will cost $700 Billion (call it a Trillion dollars) that will bailout lending institutions from these bad loans.
I will not get into the politics of this plan, the details and pros in cons in this article.
However, I will share with you my great concern with the proposal as it pertains to real estate here in Phoenix, Paradise Valley, Scottsdale and the rest of the metro Phoenix communities of Glendale, Peoria, Chandler, Tempe and others.
Again, we face a massive hurdle to clear in Greater Phoenix (Maricopa County) before we can improve the local real estate market. The challenge is the large inventory of homes and the growing supply of short sales, REO and foreclosures.
The problem with the $700 Billion bailout and bad-dept fund is that it (in my firm opinion) adds to the supply of homes. And I believe it adds to the supply of real estate significantly in Phoenix.
The banks are out from under deep water. However, the Treasury Department has jumped into the lending business and real estate portfolio management business with no expectations in return from the banks (except to repay the loans).
The bailout fund is buying all the bad debt and assets from these banks. However, these assets include real estate (homes in Phoenix | Scottsdale) and undervalued or loans that cannot be repaid.
The proposed bailout would provide the government power to buy, manage and sell the mortgage-related investments.
The government is not know for managing themselves well. They are not in the real estate and lending business. I do not expect them to perform well at the banking business (or insurance business - think AIG).
Ultimately, they do not want to be in the bad debt or real estate business. They will need to sell these loans or REO , now GEO’s (my term for Government owned real estate).
Treasury Secretary Henry Paulson says the government would “set up reverse real estate auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept.”
How low they would accept?? That is not the type of phrase phoenix area homeowners want to hear.
The one upside to banks owning real estate and selling REO on the market is the concern for profit or loss mitigation. Banks have shareholders to report to. As a result, they do not just sell everything, at any price, as quickly as possible.
What will the Treasure do with GEO (Government owned real estate)?
Since, the FED does not have shareholders or the investing public to report to, they will dump these lender owned homes on the market at steeply discounted prices, further driving down home values and more net worth.
After the Savings & Loan, supply of homes rose significantly as a result of the RTC bad debt fund at that time. Expect to see supply increase in the Phoenix real estate market.
The bright-side is that it is a “buyers market” in Scottsdale and Phoenix and the demand for Phoenix area homes at discounted prices, coupled with low fixed interest rates, tax incentives, etc… will offset price any significant price declines.
There will just be more homes on the market in Phoenix, AZ and plenty of great deals to be had in Phoenix, Scottsdale, Tempe, Peoria, Glendale and all the towns surrounding Phoenix.
Attention, Phoenix home-buyers , start your engines.
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Copyright © James Wexler * Get Ready for GEO’s in Phoenix *
Contact James Wexler (480) 221-8080 for your Phoenix | Scottsdale area Real Estate needs
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