Selling A Home
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’?
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 talk with 10-20 homeowners a day with regards to either their home expiring, being withdraw, or they have been released from the listing agreement with their previous agent. Ultimately, the number one reason these homes did not sell is the list price is not what the current market preceives as value, period. What happens with this group is the homeowner ends up becoming the highest bidder with their home. Something I don’t think any homeowner wants, was planning on or expecting.
Condition, location, exposure and price will determine when and if a home will sell. To be honest all 4 categories filter back to price. Meaning, if the condition is poor then the list price needs to reflect this. If a home needs deferred maintenance and the homeowner does not want to do this, not sure why in today’s market, then the price needs to reflect this. Each category reflects back to price. Maybe, exposure is not as price driven but again the longer it takes for a homeowner(s) to understand pricing the more money or equity they will lose. Without a doubt 85% of the homeowners marketing begins with price. It’s amazing to me how many homeowners have to go through the school of hard knocks to realize this. Hope over reality is what they have. I am not being disrespectful or mean. I work with more sellers than I do with buyers. In fact, 90% of my business is selling homes. I get it…values are down and the largest financial investment a homeowner has the equity is flying out the window like a bad draft.
If I had dollar for every time I have said what I am getting ready to share, I wouldn’t need to be in real estate. I say this over and over to the groups I network with and even to my clients, ” a homeowner who is going to put their hat in today’s real estate arena MUST price their home compellingly or DO NOT put the property on the market. Wait 4-6 years for the market to get better.” If the time frame is not realistic for the homeowner then NOW is the time to get the home on the market. Again, this is not me writing nonsense BLOG posts. I back what I am sharing with facts. Look at today’s headlines. Look at the BLOG post I posted several days ago…it’s happening and their is a reason why, click here.
New Home Sells Hits a 6 Month Low
(WASHINGTON) — Sales of new homes fell to a six-month low in August. The
fourth straight monthly decline during the peak buying season suggests the
housing market is years away from a recovery.
The Commerce Department said Monday that new-home sales fell 2.3 percent to a
seasonally adjusted annual rate of 295,000. That’s less than half the roughly
700,000 that economists say must be sold to sustain a healthy housing
New-homes sales are on pace for the worst year since the government began
keeping records a half century ago.
If you know of anyone who is thinking about putting their home on the market send them this post, they will not like it but in the end they will say thank you. Thank you for not giving me the smoke and mirrors but the facts.
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.
Sellers in any real estate market are looking to get the best possible price. If you are looking to sell in the next year, today’s price may well be the best price. Home values stabilized somewhat in 2010. Many hoped that was a sign that values had bottomed out and we would see price appreciation in 2011. Studies released this week have painted a different picture.
If we look at CoreLogic’s January Home Price Index (HPI), we see that prices are again beginning to decline:
National home prices, including distressed sales, declined by 5.7 percent in January 2011 compared to January 2010…
Mark Fleming, chief economist with CoreLogic, said, “A number of factors continue to dampen any recovery in the housing market. Negative equity, which limits the mobility of homeowners, weak demand and the overhang of shadow inventory all continue to exert downward pressure on housing prices. We are looking out for renewed demand in the coming months as the spring buying season gets underway to hopefully reduce the downward pressure.”
They are not talking about the spring market increasing or even stabilizing prices. They hope it will “reduce” the pressure to drive prices lower.
Radar Logic’s RPX Composite Price comes to virtually the same conclusion:
Radar Logic believes the RPX Composite price will continue to exhibit year-on-year declines throughout 2011 due to a growing supply of homes for sale and in the inventories of financial institutions, and weakening demand due to the reduction of government incentives for home buyers. Moreover, banks are facing uncertainty over whether they will be forced by regulators to expand mortgage modifications, and may reduce lending and tighten standards as a result.
“No matter what you call it, a ‘double dip’ or the continuation of a long process of deterioration, the current trend in home prices is evidence that housing markets are continuing to languish,” said Quinn Eddins, Director of Research at Radar Logic. “We expect the negative trend to continue under a severe supply overhang that includes a large and growing ‘shadow inventory’ of homes in default or foreclosure.”
It seems that prices have again begun to fall nationally. With the overhang of existing and shadow inventory, prices will probably continue to decline throughout most of 2011. If you’re thinking of selling, now might be the best time. If you home is on the market and has been on the market for more than the average days on market in your area…then you need accept the reality of the market. Meaning, the buyers know your your property is for sale. The are speaking loud and clear about what they think about the price by their lack of putting in an offer. Don’t have hope over reality. Trust me when I say…the LONGER it takes to sell your home the more money you will loose with the sell. Values are not going up, values and not remaining constant…be smart and listen to your agent. As always, if you have questions please give us a call, 804980-7906 or email [email protected]
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.
For some time now, we have attempted to shed light on the fact that pricing in today’s real estate market will be determined by the concept of ‘supply and demand’. If supply continues to increase and demand softens (or even remains constant) prices will continue to fall. Even the National Association of Realtors (NAR) has acknowledged this to be true.
The supply of inventory in the real estate industry is defined by the current months’ supply of homes that is available for sale. There are no steadfast rules that will apply to every category of housing. However, here is a great guideline by which to go:
- 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
- 5-6 months’ supply creates a balanced market where historically home values appreciate at a rate a little greater than inflation.
- 7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.
Where do we stand today?
According to NAR’s most recent Existing Sales Report, there is currently a 10.5 months’ supply of homes for sale. We can see, based on the guideline above, we are in a buyers’ market and that prices will continue to soften. The other statistic we must watch is the number of months’ of shadow inventory which will be coming to market.
CoreLogic just released their November report (which covers August). They estimate shadow inventory:
… by calculating the number of properties that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders and that are not currently listed on multiple listing services (MLSs). Shadow inventory is typically not included in the official metrics of unsold inventory.
The report showed that shadow inventory jumped more than 10% in the last year, pushing total unsold inventory to 2.1 million houses.
That represents another 8 months of supply.
The Wall Street Journal reported that some analysts have said CoreLogic estimates look rather low.
Laurie Goodman, senior managing director at Amherst Securities Group, has warned that as many as seven million homes could end up in banks hands unless more aggressive modification regimes are put in place.
Barclays estimates that another 3.76 million homes are either in the foreclosure process or are at least 90 days delinquent but not yet in foreclosure.
Most industry experts are projecting just that – an additional fall in prices of between 5-20%. Mark Fleming, chief economist for CoreLogic commented:
“The weak demand for housing is significantly increasing the risk of further price declines in the housing market. This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”
I was once told a good decision is only as good as the facts. I open this BLOG post with a question for every homeowner who is thinking about selling their home this upcoming spring…if you were to be honest…do you think property values will be higher this spring? This is a question anyone thinking about selling must ask. Should they sell now or should they wait for the spring? Most years that would be an interesting question. There is a belief that many buyers come out in the spring and, with that increase in demand for housing, prices may appreciate. This year is unlike any year in recent memory. Most experts believe there will be continuing depreciation of home values throughout the next 18 months.As I posted on recent BLOG post, there may be a window of opportunity throughout the rest of 2010 as the banks try to straighten out the paperwork on thousands of foreclosures. Once that paperwork is corrected, the flow of distressed properties coming to the market at discounted prices will begin again.
This was mentioned in the latest Home Price Expectation Survey. Robert Shiller, MacroMarkets co-founder and chief economist said this:
“Over the past month, the average projection for 2010 nationwide home price performance improved slightly among our experts, but for each year thereafter it deteriorated. One plausible explanation for this month’s more negative overall sentiment is recent news concerning foreclosure processing questions and the related possibility of extending the supply pipeline.”
Other experts are also reporting that prices will soften next year
In October’s RPX Monthly Housing Market Report, CEO Michael Feder commented:
“We are at a flex point in housing valuation. With record supply, already paltry demand and systemic threats to a possible correction, we remain terribly concerned about forward home prices.”
The very next day, in a special release, Clear Capital reported a “sudden and dramatic” drop in U.S. home prices:
Most recent data shows a two-month 5.9% price decline representing a magnitude and speed of decline not seen since March 2009; similar declines for September and October expected to appear in other industry indices in coming months.
If you plan to sell within the next year, you shouldn’t wait for the spring market. Price the home at a compelling price to make sure it sells in the next sixty days. I would welcome the opportunity to chat with you about your homes market value.