Distressed Property Update - July 2011
Unsold distressed inventory levels listed in MLS (MyFloridaRegional MLS) are down 42% and 50% in Sarasota and Manatee County, respectively. The decrease is due primarily to a fall off in new listings. Distressed property listings in MLS sell at a pace more than twice as fast as non-distressed listings. Any disruption in the flow of new listings is going to cause sudden drops in inventory. This is what has happened over the past quarter. New bank-owned (foreclosure) listings are down 37% so far this calendar year compared to the same 7 month period in 2010. New short sale listings are down 23%. Between both categories, we have added 1700 fewer listings to MLS this calendar year than last year.
The drop in distressed listings and inventory is starting to have a marked effect on sales. While sales of distressed property in the past 12 months are still higher than the previous 12 month period, the last two months have seen huge declines. Combined, June and July 2011 saw a 19% decrease in distressed property sales compared to the same 2 months in 2010.
There are a couple of $10 million questions here
Are we seeing daylight or a headlight? After 3 years and over 3 million foreclosures (nationally), are we seeing the end of foreclosures or, as many think, is this just a lull brought on by a slowdown in the foreclosure process as lenders resolve the “robo-signing” issues. There are dozens of stories and statistics that point towards a big backlog, such as this report by a LPS or even this one by the National Association of Realtors.
If what we are seeing is daylight, then what impact will the lack of foreclosures have on sales? Sales of distressed properties have accounted for nearly 50% of sales across the region for the past 3 years. Were people buying distressed property just because of the perceived value? And If so, will be lose all of those sales?
With regard to the first question, there are just too many conflicting data points for me to reach a conclusion. Including:
-
Why the fall off in short sale listings and inventory? A slowdown in the foreclosure process shouldn’t necessarily mean a slowdown in short sales.
-
The S&P/Experian Credit Default statistics are all improving and back to pre-bust levels. The current indices (July 2011) are at 1.94 for first mortgages and 1.25 for seconds. They peaked during 2009 at 5.57 and 4.41, respectively. If there are fewer defaults across both first and second mortgages, how could foreclosures be increasing?
-
In most of the reports and articles describing huge volumes of shadow inventory there is no attempt to relate the backlog in foreclosures to inventory. In other words, surely some of those homes that are part of the foreclosure backlog are already on the market in the form of short sales or regular listings.
If you assume that the foreclosures and associated sales during the past 3 years have eliminated most of the big chunks of properties with delinquent loans (like entire condo buildings and half-built neighborhoods) as seems to have been done in our area, how could the remainder be nearly as large? It certainly seems as though all of mortgaged property owned by thinly capitalized builders, speculators, and subprime borrowers have gone through foreclosure and sold. What’s left are the homes of the unemployed or underemployed who have run out of savings, are not part of one of the previously described groups, and that don’t have equity in their homes. This has got to be a much smaller group than has already passed through the system. Put me in the skeptic column on this one. I don’t think there is enough shadow inventory to make a difference. As long as unemployment is high, I am sure that foreclosures will be a nagging problem – but not apocalyptic.
The second question will also be interesting. Foreclosures have accounted for nearly 50% of all sales over the past 3 years. Will the end of distressed listings end 50% of our sales or will sales continue but by default, move into non-distressed properties. Based on June and July results, it appears that buyers will just keep buying. Across the region, 2292 single family homes and condos sold during June and July 2011 while 2300 sold during the same 2 months in 2010 –That’s just 8 fewer residences. Yet sales of distressed properties dropped from 1,107 to 892 during the same period. That means that even though distressed sales dropped some 215 compared to last year, non-distressed sales increased by 207, nearly making up the entire shortfall. To me that says that there is real demand for our housing and not just speculators and bottom feeders snapping up distressed homes.