Michigan banks have begun reporting their 3rd quarter, 2013 REO and non-performing loan figures.
So what do the numbers reveal? And how do they combine with current Michigan real estate trends to dictate where the best returns are at for distressed property and debt investors?
Michigan currently boasts one of the most diverse and controversial real estate markets in the country, if not the world. Recently it has earned a reputation for both being home to some of the most distressed neighborhoods in the nation, as well as delivering some of the best growth and returns.
Detroit in particular has remained a steady fixture in media headlines thanks to the city’s recent bankruptcy filing, yet the state is no longer one of the most saturated with new foreclosures and has seen some of the fastest rising property prices. Still, there are amazing deals to be struck for those who know where to look, what to look for, and are armed with the right data and contact information.
Let’s polish the telescopic lens, zoom in on the figures and complexities of the local market, and take a closer look at where savvy investors may discover the most attractive opportunities for both short- and long-term gains.
The MI REO and Non-Performing Loan Digits Investors Need To Know
Moving into Q3 2013, 126 Michigan banks reported holding REO and non-performing loans.
According to the data compiled by BankProspector:
- Michigan had one of the highest percentages of commercial REO at 48.02%
- It also had one of the lowest state concentrations of construction REO at <19%
- As of June 2013, the Michigan bank residential REO pool had been depleted to just over $115 million in bad debt on their books
- The most substantial amount of residential non-performing loans in Michigan fell into the 1-4 family, “first non-accrual” stage, topping $1.6 billion in value
September statistics released by the Michigan Association of Realtors showed:
- Sales volume moderating after new foreclosures slowed and absorption kicked in
- Statewide year-over-year YTD average home price-increase rose 13.83%
- Mason-Oceana-Manistee Realtors saw the largest y-o-y YTD price jump at 49.18%
- Oakland County clocked the most YTD sales activity at 14,618 units
- September 2013 saw 60%+ increases in home prices in two counties
- Detroit homes prices were up over 40% compared to September 2012
Altogether, the last several months have posted extremely significant growth, especially considering the normal industry low experienced at this time of year, and despite Detroit filing for bankruptcy.
Investors seeking out bank-owned property and non-performing mortgage loans will find
The Top 10 Michigan Banks by Total Assets:
- Flagstar Bank
- Chemical Bank
- Talmer Bank and Trust
- Independent Bank
- Macatawa Bank
- Isabella Bank
- Mercantile Bank of Michigan
- First Bank
- Monroe Bank & Trust
- Sterling Bank and Trust
Q3 Statistics for Distressed Debt and Property Investors
Not all Michigan banks have turned in their numbers for the 3rd quarter of 2013 yet, but those that have provide some valuable insight into current trends and the locations of the biggest pools of distressed property.
Q3 statistics show:
- The bulk of Michigan REO being commercial properties, followed by construction and residential
- The largest pool of non-performing commercial loans is forming in owner-occupied loans in the non-accrual stage, waiting to be foreclosed upon
- The same is true of residential home loans, but followed by a more significant percentage of first time defaulting mortgages between 30 to 90 days late
5 Michigan banks with residential first position loans 30 to 89 days late worth watching:
The State of the State’s Real Estate in October 2013
Several significant trends are affecting the Michigan real estate market, changing the dynamics.
For those investors fast enough to act and see how they measure up by buying REO and non-performing bank assets, there are incredible opportunities to be had. Even more for those who aren’t afraid of being innovative and going big.
It’s no secret that Chinese buyers are one of the biggest forces in the U.S. property market today. Previously they have been heavy in Southern California, and this week inked a landmark deal in Manhattan. However, following the news of the Detroit bankruptcy and realizing they could pick up a pair of homes in the city for “less than a nice pair of boots,” they have been plowing in cash to buy up homes sight unseen. In bulk. Dozens at a time.
Meanwhile Michigan born entrepreneurs all over the U.S. have been standing up to invest big bucks to revive their home state. According to media reports and the online comments they have left, many are still looking for partners in Michigan to put their money to work.
Simultaneously, Detroit is reportedly still trying to figure out what to do with $300 million is has to deal with 78,000 abandoned properties, which means lots of liquidity and opportunity.
Plus, Bloomberg reports that the nation’s largest banks are now almost done fulfilling their financial obligations to provide relief to homeowners, which indicates new defaults are likely to go the distance to foreclosure unless investors step up and take them out as non-performing notes first.
Opportunity Watch: 5 Michigan Real Estate Trends to Track and Bank On
1. Virtual Wholesaling
Southeastern Michigan has become a hot and easy spot for virtual wholesaling. Even though great gains have already been seen in local home prices, they are still so low and demand so high that properties are being flipped sight unseen of the internet, with investors easily doubling their money, and more.
The Detroit area is undergoing a major restructuring and this will continue, which means bulldozing as many as 10 blocks at a time to clear paths for new communities or urban farmland, while increasing density and occupancy rates in other neighborhoods, allowing government to keep up public services. Know before you invest, and pick your strategy for cash-in on this.
Safety and security is a major issue in Detroit. In some years the notoriously crime-ridden city has seen more homicides than entire countries, while hundreds of wild dogs now literally run the streets in packs. There is money to be made on fixing-and-flipping and buy-and-hold real estate here, but security will continue to be a factor. Investors who seize on this to provide safer housing, or security for other investor’s housing, will bank big.
4. High End Home Flipping
While Michigan may currently be most famous for dirt cheap foreclosure homes, and that is what the majority of investors are chasing, the state also has many affordable estate and upscale properties. According to a new report by Bloomberg and RealtyTrac luxury homes offer four times the profit spread for those flipping homes, as well as more opportunity, thanks to less competition.
5. Widening the Net
Again, while inner city Detroit is attracting the bulk of the attention from those looking to buy REOs and non-performing loans from banks others will find safety and higher returns cherry picking deals with huge spreads by widening the net. In Clarkston, waterfront homes are still going for a fraction of previous values and out in Grand Rapids there is a new economic revival and startup hub evolving.