If you are wondering why we are not recovering like many of the experts expected by the Spring of 2010, and I include myself as expecting the recovery to be in full swing right now, just look at the short sales and REO properties that are flooding the market.
If you talk to any real estate agent out there you will find that new buyers first ask about what foreclosures and/or short sales are available. The consumer is being trained to look for them first as opposed to the traditional market.
The rebound in distressed sales occurred due to increases in both the REO and short sales shares. The REO share increased to 22 percent in January 2010, up from 19 percent in December but down from a year ago when it was 27 percent (Figure 1). Short sales accounted for 8 percent of all sales in January, up from 7 percent in December and 5 percent a year ago. During the last 12 months, there were 974,000 distressed sales: 740,000 were REO sales and 234,000 were short sales.
So 30 percent of all homes sold in January were foreclosures or short sales. That puts tremendous pressure on the traditional real estate market and pricing. That will keep the marginal sellers from putting their homes on the market while maintaining tremendous pricing pressure on sellers.
Think about it. The buyers want to see the short sales and foreclosures first, that means the pricing signals they are getting are much lower than what the traditional market needs. There will be an uphill battle for all in the market at that stage.
Oh, and add to the equation faster short sale processing you will see the problem get worse, not better. All of the buyers who walk away from the short sale process will now be more willing to see if they can close a shorty in 45 days like Obama promised. That is not good news…
Add into the equation the huge pricing discrepancy as reported by Core Logic we are in for a rough summer.
The average non-distressed market-sale price in January was $247,700 but the distressed average price was $161,600. The average REO price was $141,900, compared to $215,300 for short sales. The discount between market sales and distressed sales is currently about one-third and has been running at the low-to-mid 30s during the last 12 months.
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Oh let us get real. Cuomo had nothing to do with it. Was The righeous Rev Al Shaptin and his
croonies pushing for loans they, the Black Caucous Groips Et al pusing
Fannie and Freedie into doing loans that they knew the borrowers could
not qualify nor never repay.
This issue is minor compared to what the commercial
loan markets are know facing!
The issue here is less that REOs and Short Sales are a drag on the market. Put quite simply, they are the market.
If you look at real estate inventory as compared to sales in my area, for example, in June of '05 we had an inventory of 3710 and 3119 in sales, most of which were simply traditional sales as you had people just driving around looking for signs and home buyer assist places cutting realtors out of the deals. By June of '07, we had 25923 in inventory and only closed 1524 sales. Now we're finally starting to level out more and last March our inventory was 16223 and we closed 2473. About 80% of the inventory were REOs and short sales.
Yes, people have learned the terms and learned to ask for them, but that's the majority of what's available. Most sellers are underwater these days. While it would be nice to have a traditional market with which to catapult recovery, we have to work with what we have. Though I wouldn't classify a slower recovery as a "drag." Rather, without REOs and Short Sales, we wouldn't have a market at all.
Agreed–even though people have learned what to ask and how to ask doesn't mean that the industry or market is "dragging." Like other industries in the United States, real estate and custom home building has been hit hard by the dwindling economy. But Chris is right–REOs and Short Sales is what is keeping the industry going.
Enjoyable post nonetheless, thanks for your insight!
Foreclosures and short sales are keeping the prices down but it a good time to be a buyer!
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