Shadow Inventory (Distress Properties) and Its Impact on Prices In Chesterfield County and Surrounding Areas
Thanks to KCM, which I subscribe to, they provide an excellent understanding of how these types of properties affect a home value.
Posted: 09 Jan 2013 04:00 AM PST
Many analysts differ on what impact shadow inventory will have on house values in 2013. Some warn that these distressed properties will still play a major role in limiting appreciation. Others believe that the increases in buyer demand will more than offset the increase in supply. The only thing on which everyone agrees is that there will be millions of distressed properties that will need to be liquidated over the next few years. How these properties are handled will have an effect on the impact they will have on values.
According to the National Association of Realtors, foreclosures sell at a 20% discount while a short sale sells at a 16% discount. Therefore, a short sale has less of a negative impact on prices compared to a foreclosure. Obviously, if the mortgage is modified, no sale takes place and there is no impact on surrounding home prices.
The U.S. Treasury Department just issued their latest OCC Mortgage Metrics Report which reports on how these distressed properties are currently being handled. Here is a graph showing how these properties are being processed now as compared to a year ago.
Want to learn more about ‘shadow inventory’?
Interesting article today in the Business Section of the Richmond Times Dispatch. I cringe when I see agents post to their Facebook page or on the Internet the housing market has recovered. I’m not being a pessimistic agent however, when information is presented from a real estate profession…it’s important the information is based on facts and not emotions. It creates confusion with homeowners and buyers when they hear or read one thing and then something comes out which contradicts or has a mix-bag of information.
I’m a very optimistic person but I’m a realist. If you are thinking about waiting to sell your home…this might change you decision to wait and act now. If you are thinking about waiting for values to return…this could be another year or two down the road before any values start to appreciate. The distress properties must get in check before any housing values will return. That…you can take to the bank.
To view article, click here.
If you have any questions regarding this information or if you are thinking of either buying or selling real estate in the next 15-30 days…lets chat.
If you are a homeowner thinking about waiting until next year or spring to put your home on the market that might not be the best option. Don’t wait…price your home to sell and sell now if you want to maximize your profits AS TO today’s market value. Even though these types of properties are higher in other parts of the country they are still a concern locally in Richmond, Tri-Cities and Chesterfield County VA areas. Anytime a property closes as a short sale or foreclosure it is selling, on average, below the current market value rate.
From USA Today-Foreclosure sales are moving so slowly in half the states that at the current pace, it will take more than eight years on average to clear the 2.1 million homes in foreclosure or with seriously delinquent mortgages, new research shows.
That’s about twice as long as a year ago in the states where foreclosures go through courts — before the mortgage industry was upended by last fall’s disclosures that court papers in many foreclosure cases were improperly prepared. Since then, new checks have slowed the process. Read more…
I have suggested that sellers who need to sell within the next 18 months had a ‘window of opportunity’ to sell at higher prices. They needed to put their houses up for sale immediately before a flood of distressed properties were introduced to the market. This window is beginning to close. The paperwork challenges faced by banks that caused a delay in the foreclosure process over the last ten months are starting to clear. It seems that these houses are now coming to the market.
RealtyTrac reported in their September Foreclosure Report:
“Default notices were filed for the first time on a total of 78,880 U.S. properties in August, a nine-month high and a 33 percent increase from July — the biggest month-over-month increase since August 2007.”
James Saccacio, chief executive officer of RealtyTrac explained:
“The big increase in new foreclosure actions may be a signal that lenders are starting to push through some of the foreclosures delayed by robo-signing and other documentation problems. It also foreshadows more bank repossessions in the coming months as these new foreclosures make their way through the process.”
Diana Olick, of CNBC’s Realty Check quoted a spokesperson for Bank of America:
“ Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.”
The impact will be felt from coast to coast. New Jersey Superior Court Judge Mary Jacobson recently cleared the way for the top banks to resume foreclosures in the state. The impact this will have on the number of distressed properties can be clearly seen in these statistics reported by Housing Wire:
“In October, New Jersey had the 24th highest foreclosure rate in the country, with servicers filing roughly 5,200 foreclosures that month, according to RealtyTrac. By July, the Garden State’s foreclosure rate dropped to 42nd with just 1,112 filings last month.”
ForeclosureRadar, which handles research in California, Oregon, Washington, Arizona and Nevada, last week reported:
“Foreclosure starts rose in every state.”
If you currently are selling your home, price it to compel a buyer to purchase it now. Don’t be naive in thinking this does not pertain to Chesterfield, Colonial Heights, Petersburg, Richmond, Prince George, Mechanicsville, Powhatan or any of the surrounding areas BECAUSE it does have a HUGE impact on property values. Waiting will cause you to compete with an increased number of distressed properties which sell at dramatically discounted prices.
A call to action for any homeowner who has their home on the market or is thinking about selling their home. Price your home to sell. Don’t go into a transaction with hope over reality because as you will see from the information below…it’s going to cost you money, headaches and more importantly…the property will not sell. Follow the advise of a professional REALTOR so they help you get what you want in the time you want.
Two separate housing reports came out in the last week which discussed different challenges facing the current real estate market. The first was CoreLogic’s Negative Equity Report and the second was JP Morgan Chase’s Home Price Monitor. Each report delivered some difficult news. However, if you piece both reports together, we can see future challenges are in store for home values.
Negative Equity-When a home’s current value is less than the existing mortgage on that home, the house is said to be in a ‘negative equity’ situation (other terms used to describe this situation are ‘underwater’ and ‘upside down’). The CoreLogic report stated:
“…that 10.9 million, or 22.5 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2011… An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the second quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.”
This is important because studies show that people in a negative equity situation are more likely to default on their mortgage payments than people who have equity in their homes.
Home Prices-Many experts believe that housing prices will soften through this winter. According to an article in HousingWire, analysts from JP Morgan Chase announced in their recent Home Price Monitor:
“Home prices could dip another 6% to 7%, before hitting rock bottom in early 2012.”
Let’s Combine the Information-The CoreLogic report said there are an additional 2.4 million households with less than 5% equity. The JP Morgan Chase report said that prices will drop another 6 to 7% in the next six months. That leaves an additional 2 million+ homes in the near future that will be faced with the decision to pay (or not pay) the mortgage payment on a house no longer worth the amount of that mortgage.
Bottom Line-History has shown that a percentage of those 2 million+ homes will enter the distressed property category as some families decide it no longer makes sense to pay their mortgage. Any increase in short sales or foreclosures will impact prices in an area.
Foreclosure activity has fallen to its lowest level in over three-and-a-half years, according to RealtyTrac.
The company released its July foreclosure market report on Thursday, which showed a 4 percent decline in filings from the previous month and a drop of 35 percent when compared to July 2010.
Last month, foreclosure filings – including default notices, scheduled auctions, and REO bank repossessions – were reported on 212,764 U.S. properties. That figure equates to one in every 611 housing units with a foreclosure filing.
The latest numbers from RealtyTrac mark the 10th straight month the company has recorded year-over-year decreases in foreclosure activity and the lowest monthly total since November 2007.
James Saccacio, RealtyTrac’s CEO say while the string of declines was initially triggered by the robo-signing controversy back in October 2010, the downward trend in foreclosure activity “has now taken on a life of its own.”
“It appears that the foreclosure processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts – including loan modifications, lender-borrower mediations, and mortgage payment assistance for the unemployed – may be allowing more distressed homeowners to stave off foreclosure,” Saccacio said.
“Unfortunately, the falloff in foreclosures is not based on a robust recovery in the housing market but on short-term interventions and delays that will extend the current housing market woes into 2012 and beyond,” Saccacio continued.
Filings were down in all stages of the foreclosure process — by single-digits on a month-over-month basis and double-digit decreases in the 20-40 percent range on an annual basis.
RealtyTrac’s data show that default notices (NOD, LIS) were filed for the first time on a total of 59,516 U.S. properties in July. Foreclosure auctions (NTS, NFS) were scheduled for 85,419 homes last month.
Lenders repossessed a total of 67,829 properties (REO) in July. While the overall number represented a decline, RealtyTrac said it recorded a spike in REO activity of more than 20 percent in a few states, namely New York, Massachusetts, Georgia, Virginia, and Illinois.
Nevada posted the nation’s highest state foreclosure rate for the 55th straight month, even with a 28 percent decline in filings compared to a year ago.
California claimed the No. 2 spot on RealtyTrac’s top-10 list, with Arizona taking the third highest position. Other states with foreclosure rates ranking among the top 10 include Georgia, Utah, Florida, Michigan, Idaho, Illinois, and Wisconsin.
RealtyTrac reported that it’s seeing a spike in foreclosure activity in some especially hard-hit cities.
In Florida, for example, the Naples-Marco Island metro area posted an 83 percent increase in filings from June to July, and the Ocala metro’s foreclosure activity jumped 60 percent.
In California, the Stockton metro saw a 57 percent rise in filings month-over-month, and in Vallejo-Fairfield the increase was 33 percent.
The conventional wisdom when selling a home has always been to wait until the ‘Spring & Summer Buying Season’. Over the years, this has seemed to make sense and is now accepted as a good strategy for those who want to sell their house and receive the best possible price. This real estate market has shattered many previously held beliefs. The wisdom of waiting for a spring/summer market is another belief that is about to fall. Here are five reasons why?
1.) Interest Rates Are On the Rise
Interest rates have spiked up rather dramatically over the last ninety days and are now over 5%. Initially, an increase in rates has a positive effect on the market as it forces buyers off the fence. However, it also eats into a buyer’s purchasing power. As rates increase, the mortgage amount a buyer qualifies for decreases. This will eventually have a negative impact on prices.
2.) Your Dream Home Will Never Be Cheaper
If your family goal is to sell your current house and take advantage of the fabulous selection of properties currently available to buy the home of your dreams, DO IT NOW! Prices will continue to soften in most markets. However, if you are buying, COST should be more important than PRICE. Cost can be dramatically impacted by rising mortgage interest rates. Do the math and decide if now is the time.
3.) Buyers Are Out Early
There is mounting evidence that buyers are coming out earlier this year. A belief that now is a good time to buy coupled with the increase in interest rates has started the buying season early.
Pete Flint, CEO of Trulia.com:
“We’re seeing a national resurgence of buyer and seller activity on Trulia.com. In January alone, we experienced an unprecedented level of site traffic including 11 million unique visitors – which is more than 70 percent year-over-year growth. We’ve are now experiencing 100,000 property views per minute.”
4.) Inventory Increases Every Spring
Every year there is an increase of inventory which comes to market as we approach the spring. Here is the number of listings available for sale in 2010.
- February – 3,531,000
- March – 3,626,000
- April – 4,029,000
We believe there will be an increase in these numbers in 2011 as there is a pent-up selling demand created by the weak market of the last few years. You won’t have to worry about this increasing competition if you sell now.
5.) We Are in the Eye of the Foreclosure Storm
While banks are trying to rectify their foreclosure procedures, there is a large supply of discounted properties which has been delayed coming to market. This inventory will be released sometime in the next few months. Foreclosures sell on average at a 41% discount. When released they will be competing with your house for the buyers in the marketplace. If you are looking to sell in 2011, you want to sell before this inventory becomes your competition.
CNN Money quoted the leadership Of RealtyTrac on this issue:
“We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James Saccacio, CEO of RealtyTrac.
“Unfortunately,” he added, “This is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.”
“We expect a spike in the first quarter,” said Rick Sharga, a RealtyTrac spokesman.
These are five strong reasons to sell now instead of waiting until later in the year. Let’s chat about these and what you need to do in order to sell your home.
Foreclosure activity is slowing. According to foreclosure-tracker RealtyTrac, the number of foreclosure filings dropped 17 percent on an annual basis last month. Monthly filings ticked higher 1 percent after a combined 23 percent decrease through November and December 2010.
The phrase “foreclosure filing” is a catch-all term, comprising default notices, scheduled auctions, and bank repossessions.
January marked the third straight month of sub-300,000 filings after 20 straight months above it.
As compared to January 2010, six of the nation’s 10 most foreclosure-heavy states posted an annual foreclosure filing reduction. The remaining four showed modest worsening.
It’s noteworthy that states like California and Florida posted declines of 7 percent and 54 percent, respectively, and that Nevada posted a relatively-low 3 percent gain. These three states have been at the leading edge of foreclosure activity since 2007. Their subsequent recoveries, therefore, may foreshadow a better housing market ahead.
Or, this may be lasting effects from the “robo-signer” controversy.
Regardless, home buyers in Virginia continue to clamor for distressed homes.
According to the National Association of REALTORS®, properties in various stages of the foreclosure and short sale process are selling at discounts in the range of 10-15 percent so it’s no wonder they now account for 36 percent of all home resales. Buying a foreclosure can be a great “deal”. They can be more trouble and cost than they’re worth.
Therefore, If you’re in the market for a foreclosed home in the Meadowville Landing area , be sure to speak with a licensed real estate agent. The process of buying a distressed home is different from buying a non-distressed home. An experienced professional can help make sure you negotiate your best possible price.
According to foreclosure-tracking firm RealtyTrac, the number of foreclosure filings nationwide dropped for the second straight month in December. After falling 21 percent in November, filings were down by an additional 2 percent in December.
“Foreclosure filing” is a catch-all term, comprising default notices, scheduled auctions, and bank repossessions.
Like most months, a small number of states dominated December’s national foreclosure figures. 6 states accounted for more than 50 percent of all bank repossessions.
- California : 17% of all repossessions
- Florida : 11% of all repossessions
- Arizona : 6% of all repossessions
- Michigan : 6% of all repossessions
- Texas : 6% of all repossessions
- Nevada : 4% of all repossessions
December’s foreclosure filings fell to its lowest levels since June 2008, but we can’t read into the report too much just yet. Foreclosure volume continue to be dampened by lawsuits and moratoriums related to controversy surrounding the so-called robo-signers.
Foreclosure activity may have lessened in December anyway, but we can’t know for certain.
Distressed properties are in high demand among home buyers, accounting for one-third of all home sales; typically sold at a steep, 15 percent discount as compared to non-distressed properties.
Buying foreclosures can be a terrific “deal”.
That said, buying a foreclosed home is different from buying a non-foreclosed home. Specifically, because you’re buying from a bank and not a person, contracts may vary from what’s “customary” and negotiations may be drawn-out.
It’s one reason why buyers in Chesterfield – first-timers and investors alike — should talk with a real estate agent before writing an offer for a foreclosed property. You can learn a lot from the internet, but when it comes time to actually purchase a home, you’ll want an experienced professional on your side.