Rumors are circulating that San Diego County has 20,000, 40,000 or 60,000 bank-owned properties coming to market (I’ve heard all three numbers).
How many can we handle? All of them of course, because there’s nothing price won’t fix. But how many could come to market in the next six months, and sell without much disruption?
LET’S TRY TO PREDICT: HOW MANY MORE REOs COULD THE MARKET DIGEST?
Here’s the chart of San Diego MLS detached and attached monthly sales (in red) and the monthly NOD and Trustee Deed counts taken from Ward’s site:
The NOD counts are suspect because there are so many people defaulting to increase their chances of getting a loan modification. Plenty of them will be foreclosed in the future, with or without a loan mod, but it helps explain why there is such a gap now between NODs and Trustee Deeds.
Here are the overall totals for each year:
2008
NODs: 34,069
TDs: 19,575
MLS Sales: 29,728
2009 YTD
NODs: 25,243
TDs: 8,936
MLS Sales: 19,824
The MLS sales are up nicely this year, and are about 30% ahead of 2008 for the first seven months.
Last year there were the 19,575 trustee deeds that either went back to the beneficiary or were bought by a third party. By now the vast majority have been digested, and yet the demand remains high. It appears that the San Diego market can handle at least 20,000 REO sales per year.
In Oceanside today there are 10 buyers for every decent house that comes on the market, and prices are rising on those under $300,000. Throughout the coastal region there are multiple offers on every sharply-priced house.
For there to be an overwhelming surge in REO listings, the servicers would have to get busy foreclosing. There aren’t 20,000 bank-owned properties currently, let alone 40,000 or 60,000.
ForeclosureRadar shows 4,093 bank-owneds today, and the MLS has 2,317 active or pending REO listings, leaving only 1,776 not on the market.
I don’t think the ForeclosureRadar’s counts go back that far, but the servicers have had time to catch up. There might be another 1,000 or 2,000 bank-owneds lingering, but not 20,000.
There are also 8,429 properties that have received their notice of trustee-sale date. If the servicers get busy and foreclose on the bulk of those this year, let’s say 7,000, and add that to the 1,776 and 2,000, we’d have roughly 10,776 more bank-owned properties (or third-party flippers) to look forward to this year.
There were 17,262 MLS sales in the second half of 2008, so if there were another 10,000 REOs listed over the rest of 2009, I think market would gobble them up.
Next year will be very interesting though!
Of course, this is mostly a thought exercise. There are too few REOs for the market (every market, not just San Deigo, but Orange County, Riverside County, LA County, San Bernadino County, probably other states too), not too many. I think these sky-high numbers of foreclosures people throw around include everybody who has gotten a NOD (so they aren’t foreclosures yet and may never become one), or maybe even everybody who has missed even a single payment. Or maybe they are picked out of thin air.
Yes, just speculation.
I’d like to see the REOs double or triple, or see short sales actually become SHORT.
Wachovia is on the ball though, they just responded with their short-sale answer in less than a week to a file we just sent in.
Their first responders are running a credit check, and if the score isn’t too bad, they agree to the short sale and ask the seller to execute an unsecured note with payments over 15 years, which left them only about $30,000 short of full payoff.
Our self-employed seller’s credit had deteriorated recently, and can’t make the payments, so they sent it to Level Two, and said we should have another answer in a week or two.
They did not require a financial statement/income verification from the seller either, just based on credit score.
I think it really depends on where they decide to price the REOs. If they are reasonably priced, then I’m sure people will buy them.
“I don’t think the ForeclosureRadar’s counts go back that far,”
They go back a couple years, you just have to check the checkbox that say “Include historical records” before running the query.
‘I think these sky-high numbers of foreclosures people throw around include everybody who has gotten a NOD’
You are probably right.
There was a good chart up on CR yesterday about the OC – it’s probably similar for SD.
http://4.bp.blogspot.com/_pMscxxELHEg/SnsM6DXuy-I/AAAAAAAAGBM/fcfh5q7CuYI/s1600-h/90-day-chart-big.jpg
The number of 90+ days keep increasing, along with the number of people in some stage of the foreclosure process.
But the REOs? Going down.
I could understand not wanting to flood the market, but dropping REOs out like a leaky sink is just cruel and unusual punishment for those of us on the sidelines. 🙂
..drip
….drip
How about looking at delinquent residential property tax numbers? Even if people strategically stop paying mortgage for more negotiating power they are not going to stop paying property taxes.
If you see someone stop paying PT then they are gon’ers…..
Thanks, umm, whatever your name is 😉 (at comment #4)
ForeclosureRadar does go back a few years, but when I checked the historical box it shows every bank-owned property over their history, which was 33,000+.
But they include all of the REOs already sold.
A check of the last six months showed 5,778 bank-owned properties, some of which have probably been sold.
I think when and if they let the appraisers value the properties at market value, the banks start lending again, I would say we would be back to a normal market (70% organic listed sales not 70% REO’s sold for all cash offers) in a few months time.
Signed
T-G-B-TORE
The Greedy Bastards That Own Real Estate
The NOD counts are suspect because there are so many people defaulting to increase their chances of getting a loan modification.
FYI, these counts are also suspect because there are occasionally multiple NODs per property. If you pick a REO and run a list of documents recorded in association with that property in the year prior, chances are, you’ll not see just “NOD NTS TD”. You’ll see “NOD NOD NTS TD”, or “NOD Rescission NOD NTS TD”, or something else that’s even weirder.
I hope you’re right and next year is indeed interesting, at least on the upper end.
There is no question that the demand is strong. Even in the rental market anything decent at a somewhat reasonable price gets snapped up before I can even drive down from LA to see it.
What’s up with the Alt-A explosion I used to hear so much about? Think that has a chance of changing things?
The Alt-A don’t have to explode, if the current ‘kick-can’ philosphy prevails. Waiving the resets/recasts are the answer, but I haven’t heard of one happening yet.
That’s the question – are Bank of America and Wells Fargo, neither who have ever funded a neg-am loan, smart enough to know how they work? Countrywide’s neg-ams were the most toxic, and World Savings’ the least, but there are so many of them that they better think of something fast.
I think the Fed rate cuts and the corresponding drop in the LIBOR ended up derailing the Alt-A ARM train that was bearing down on people. The 6 month LIBOR was around 5.5% a few years ago, and now it’s under 1%. Without this huge drop in the rate, all those with 3 or 5 yr ARMS would have been crushed with a massive payment spike when the fixed rate period ended.
The same guy who a few years ago was sweating a reset from 5.5% fixed to 8.5% on his ARM (that’s about a $1300/mo. payment spike on $500K) is now basking in the (temporary) glory of a 4% rate and much lower payments.
sdnerd-The issue isn’t selling the houses once the banks actually foreclose-the banks are pretty quick about that. The issue is moving from the NOD stage to a completed trustee auction-that’s where the hold up is. In theory, a lot of these people are arranging loan mods or short sales-if they get either (or if they come up with the money owed), the house never becomes a foreclosure at all.
Nameless brings up a good point too. If a house gets four NODs, it might get counted four times as a “foreclosure” in some of these numbers, even though the bank hasn’t even taken it back. So the exaggeration is even worse than I was thinking.
Dacounselor is right on about Fed derailing the Alt-A arm implosion. Seeing the Alt A charts I assumed this would be a crazy implosion. Just add it to the list of govt manipulation this year.
It is going to be delayed for years. I have several friends who wanted to refinance and lock in when rates were 4%. They were stressed because their homes had lost equity and didn’t know how they would be able to refinance.
When they called, they were told, “Keep the adjustable because you now have a 3.5% rate and you pay $300 less.” So they are sitting pretty for another year. Deep down they know they can’t keep rates artificially suppressed forever, which I can tell leaves them a bit stressed.
Reaty Trac is the worst about counting multiple NODs as separates. If your 1st and 2nd lenders both filed an NOD, RT counts those as two also.
Deep down they know they can’t keep rates artificially suppressed forever
I guess the question there is which will come first?
(A) Substantially higher rates
(B) 125%+ Re-finance programs
(C) Inflation
With all the reports coming out recently that 40-50% of homes are going to be underwater in the next few years something tells me the intervention band will keep playing in full force.
Not so sure about ALT-A being diverted or delayed, since the OpARM people — most of which were paying NegAm — will still face a pretty formidable recast.
All the “end of recession” talk has people saying the Fed will stop monetizing Treasuries. If that happens then mortgage rates will jump for sure, since they bought *half* the recent 7 year auction just to keep things in check.
Of course, I don’t think there’s any chance of the Fed pulling out any time soon, and if they have to monetize as much or more of future auctions then the rates will rise anyway as the bond vigilantes start reasserting themselves.
As has been said… “should be interesting”.
Yeah, talk about delaying trustee sales. I was at the auction yesterday. It took more than 45 min for Jay to read all the postponements. And he reads them pretty fast – address, date, reason.
Nice group of people, someone brought doughnut holes for the group.
I agree rates have to go up at some point. However, the stock market has to rally to adjust for the fall in the dollar too.
Quick question: delaying recasts would destroy a banks balance sheet no? That’s a lot of revenue that simply vanishes.