From Diana Olick at cnbc.com:
Home prices fell 6.7 percent in February year over year, according to a new report from CoreLogic. That numbers includes distressed sales, that is, sales of foreclosed properties or short sales, where the bank agrees to let the homeowner sell for less than the value of the mortgage. If you take those sales out, however, home prices were basically flat.
“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” notes CoreLogic’s chief economist Mark Flemming. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”
Distressed sales, though, still make up more than a third of all home sales, according to the National Association of Realtors, and that number is likely to rise at least in the near future. The banks have slowed the process of foreclosure, and that has reduced the number of bank owned properties hitting the market lately, but it’s a whole different story with short sales.
“Absolutely we can see on the ground, it’s just happening,” says Robert Cruz, a real estate broker just south of San Francisco who deals primarily in short sales. “The banks are asking us to go out and engage the borrower, find the borrowers who have defaulted or re-defaulted and list the properties before they have to foreclose.”
Short sales used to be a long, tedious process with a very low success rate. “Short sales used to be a waste of time,” Cruz remembers. “Now it’s totally changed.”
Much of that is due to banks streamlining the process and a new government incentive program, but much of it is coming from the banks themselves. Cruz says in the first quarter of this year his firm’s short sale closings were up at least 60 percent, thanks to the banks and servicers being far more aggressive in pursuing them; not only are they pursuing them, but they are paying for them.
While the government’s Home Affordable Foreclosure Alternative Program offers borrowers $3000 in “relocation assistance” after successful short sales, Cruz says some of the banks are paying borrowers up to $25,000. He says the banks know the sellers are more savvy today and know they can live rent free for at least a year before a bank takes possession of the home in foreclosure. $3000 isn’t much incentive to move quickly; $25,000 is.
“It’s a sea change,” adds Cruz.
So why am I telling you all this? Because if short sales continue to increase at this rate, even just this year, that’s going to push the home price numbers down even further. Sure, if you take out the short sales, the numbers will look better, but those big headline numbers generally include short sales, and that will further erode confidence. More short sales will also force organic sellers and home builders to try to compete with lower prices. Short sales may be better for the banks and better for borrowers’ credit scores, but they will take their toll on the greater market.
I’m hoping that JimG or others can comment on the recent “sea change” that this guy mentioned.
The only short sale we have in process is in its 14th month, so I wouldn’t call that a sea change.
I never see any MSM comments about how the fraudulent realtors who under-sell their short sales could be the cause for them tanking the comps.
Realtor fraud is the #1 reason for low SS comps, with no close second-place.
So when there was fraud overpaying on properties were they the #1 reason for high comps?
LOL desmo, that’s too funny. I agree though.
Please God let’s hope that more short sales take more of a toll on the market.
On a more serious note, the guy they quoted in up in the Bay Area, which had/has alot more of the old World Savings – Wachovia pick your payment loans and I know that Wells Fargo has an entire department devoted to trying to push short sales of the properties in default on those loans, so it may be true up there, but I don’t think SD or LA have as many of those loans (although there are some). FWIW.
I just did an analysis of a relatively exclusive area of Phoenix where there was plenty of short sales and also plenty of straight sales. When I removed the short sales the data surprised me. Short sales where all over the place and followed the recent Shiller bounce and fall, but the organic sale prices were flat for the last couple years with a step function down in December. There was definitely some seller reorientation going on.
(Well, some sellers got reoriented – the seller who got my offer has definitely not adjusted to the market – he just got angry.)
“but they will take their toll on the greater market”
oh no… What a terrible, terrible thing it would be to pay less for a home. What would I do with all that extra money I have left over each month?
Double, double, Tolls in trouble.
http://cr4re.com/charts/charts.html?Home-Prices#category=Home-Prices&chart=RealHousePricesFeb2011Prelim.jpg
Along with KB Homes and the rest.
Nice chart DTO – I suggest people print that chart and draw some trend lines connecting the various tops/bottoms of the booms/busts prior to this one.
Note where they come out. Note where the prior two tops would have let this market to top out at 135 vs 180.
Read into it what your instinct tell you considering the magnitude on the high side was extreme compared to the prior 2 top’s trend line.
Would like to overlay the 10yr treasury on top of this chart and see any correlations in movement.
(Well, some sellers got reoriented – the seller who got my offer has definitely not adjusted to the market – he just got angry.)
You don’t expect him to just give it away, do you? 😉
remember, his house is special…
I hope your client on that 14 month short sale is getting a 10k per month discount as that drags on !
We thought the same thing.
We started at $1.275, now down to $1.155 plus bank now pays $10,000 in termite = $130,000/14 = $9,285 per month.
Close.
😉
I’ve been following the sales and psychology in Silicon Valley up north.
Prices really tanked in the last half of last year. I saw some surprisingly low sales prices in November, December and February.
However, this spring the optimism among sellers is running high. The asking prices for properties are really high given what happened in the winter.
It will be interesting to see what happens: do sellers cave in and lower prices? Or do buyers step up and pay? Last year is was the former…
Great work. I am sure your clients appreciate the $9300 per month discount !
Greenlander,
We see the same stupid seasonal optimism here in LA. I chalk it up to the fact that sellers don’t watch the market, so they don’t know what the comps were for the past 3-6 months, and most sellers agents are too chicken to disabuse them of their pie in the sky expectations regarding the listing price and likely selling price of their home.
It’s interesting to me that there’s so much focus from the MSM on either instilling confidence or eroding confidence on the housing market. Every article we see these days puts housing in the framework of an investment. The same bullish/bearish, optimistic/pessimistic, inflation/deflation arguments that occur in stock, commodity, and bond investments rule the housing market.
Doesn’t the housing market unnecessarily have an investment premium built in these days. If housing wasn’t an investment that potentially would beat inflation, wouldn’t the decision just be rent vs buy and flexibility of moving vs flexibility of modification. All things considered you’d expect over the long term that owning would always be slightly cheaper than renting. No landlord will rent if they can’t make a profit.
Not saying that housing doesn’t have an investment aspect or that it shouldn’t but it seems to be a big part of the market these days. When did the world put such a large premium on the investment aspect of a home? Maybe it was always this way but it seems a lot more prevalent in the last 10 years to me.