Rich Toscano noted here that the low-inventory conditions might cause some appreciation:
Months of inventory, which measures how many homes are for sale compared the rate at which they are being purchased, was notably lower than in recent Januaries past:
There was 26.3 percent less supply by this measure than in January of 2011, and 4.2 months of inventory is the lowest reading we’ve seen in nearly two years. Prices may have been dropping of late, but if supply remains this constrained and rates remain incredibly low (that second one is a big “if”), it’s certainly plausible that prices could start to rebound once the spring season gets underway.
The January trend of lower-supply-higher-demand has continued, reminding me of the frenzy era.
Let’s compare the amount of detached homes coming on the market to the number of solds, to see how 2012 is shaping up. Though the number of new listings and number of solds are mostly unrelated to each other, if we compare the same categories for the same time frames each year we can analyze the trends. (La Jolla was omitted again by MLS glitch)
Here’s a review of the January 1st-to-February 20th period for NSDCC detached listings, where lately we are seeing fewer new listings but sales are increasing anyway:
Year
# of New Listings
# of Solds
NL/S
2000
589
291
2.02
2001
731
294
3.00
2002
736
325
2.26
2003
784
321
2.44
2004
554
293
1.89
2005
595
282
2.11
2006
869
243
3.58
2007
758
224
3.38
2008
750
171
4.39
2009
688
168
4.10
2010
678
205
3.31
2011
697
228
3.06
2012
582
231
2.52
Here is how the NL/S looks on a graph – we are back to the 2.0-3.0 range of the frenzy era:
But will we see appreciation? We might see some spots where a flurry of activity might give you a temporary buzz, but it will be short-lived. Here are reasons why:
1. Pent-up supply is waiting just under the surface, and any sign of higher pricing should cause sellers to flood the market. But such a surge will be counter-productive, because greed will cause sellers to tack on an extra 10% on top of the temporary blip, making them look ridiculous in the eyes of the buyers.
2. Our artificially-low rates have been declared to last through 2014. Buyers are patient and unfazed by the threat of higher rates in 2012. We might see an appreciating market be more likely in a couple of years if the threat of higher rates begins to materialize, but buyers aren’t going to pay more now just because they think rates are rising.
3. We are in a short-sale environment, where realtors have more control of pricing. Short-sale listing agents want quick sales, and will price at recent comps or lower. They’re not going to test higher pricing boundaries – they don’t have to, unless the banks really get their act together on valuations and can detect a rising trend. Based on their drip system, it looks like the banks still believe the market is in free fall.
Granted, the Canyon Craftsman and this bank deal in Del Mar Heights were new listings on Friday, but in both cases I saw three groups of people come by each house while I was there. Buyers are lying in wait for fresh meat, and are happy to cruise by – but are they biting?
Auntie Agent said that they had 100 people come by yesterday’s open house, how did it go today?
Auntie Agent has been a great friend to the blog, so when she told me about her friend Ray getting this new listing of a 1915 classic in University Heights, I had to take a look.
Hat tip to Bob for sending this in from American Banker:
ORLANDO, Fla. — Banks unloading real-estate-owned properties face some tough choices, such as whether to auction off homes or sell them to investors, and whether to fix them up first. But whatever they decide, the real challenge is to avoid dragging down property values from their already-depressed 25% to 30% discounts.
Finding the best price is “an art, not a science,” said Matt Sylvia, a Bank of America senior vice president and REO production executive, speaking on a panel at a Mortgage Bankers Association servicing conference here Wednesday.
There are 2.2 million properties currently in foreclosure and another 1.8 million borrowers who, 90 days or more delinquent on their mortgages, might be soon, according to Lender Processing Services. Reducing this backlog of foreclosures is crucial to reviving the housing market and thus the economy, which in turn should help homeowners current on their mortgage payments stay current.
Still, it’s a fine line; to lower that inventory, banks still have to dispose of their REO homes. Selling short of the best price possible, just to move a property, does little to lift values or help the economy overall.
Mark Paniccia, group vice president of REO at SunTrust Mortgage Inc., in Richmond, Va., said his bank has several tricks for making sure it gets the best prices for REOs. The bank has a policy of listing properties for a minimum of 10 days, which often leads to multiple offers and helps avoid “being ripped off on an REO sale.”
“We’re upfront with everyone that we won’t accept an offer until the property is on the MLS (Multiple Listing Service) for 10 days,” he said on the panel.
To ensure it is pricing properties correctly, SunTrust typically orders an appraisal, a broker price opinion from a listing agent and a second such opinion. It then takes an average of the three to determine the REO sale price. The bank also performs “flip checks,” and monitors REO sales for six months to reduce fraud.
Sylvia said B of A typically gets offers within the first 60 days of a property listing on two-thirds of the bank’s REOs. “It’s the other one-third that don’t get offers that are the problem,” he added.
Poor communication between banks’ default and REO departments can be a hindrance. Often an REO will be listed for less than the price the bank could have received on a short sale.
“I wish we had that all figured out,” Sylvia said. “This is an opportunity. We need to do a better job, and we’re pushing hard to close that gap.” Paniccia said SunTrust is working on “how to bring valuation from REO upstream” to the short-sale process.
Banks want foreclosed properties to look like other homes in the same neighborhood but they also have to factor in whether to make repairs. During a panel discussion here, Paniccia said it is hard to commit to repairs if the repairs are not going to result in a substantially higher purchase price.
“If it costs $100,000 in repairs to get $30,000 back, that’s a tough call because of my holding costs alone. I don’t know that we’re going to invest that.”
Banks currently only auction about 2% of REO properties, but at least it’s an option. Most properties that sell at auction are part of a bank’s held for investment portfolio and tend to have unique characteristics that set them apart from other homes, Paniccia said.
For its part, B of A is considering whether to sell properties to investors or rent them out, one of several strategies that could lead to a more orderly absorption of existing inventory. “We want to look at investors to help us move assets and turn them to rentals,” Sylvia says. “We haven’t done a lot. You’ll see more of that this year from us.”
Though private equity investors have expressed interest in buying REO properties in bulk, particularly from Fannie Mae and Freddie Mac, it is unclear how they would be able to manage property rentals nationwide.
“There isn’t a company today generating the value to manage hundreds of thousands of rentals,” said Alan Jaffa, chief executive of Safeguard Properties.
Foreclosure buyers, the trash collectors of the housing industry, have been raking it in.
An anonymous foreclosure scout recently described the “ins and outs, all the dirty tricks, blatantly illegal practices” in a thread at Reddit. In fact as the thread became popular, the source deleted his comments out of concern that his identity would get out. His answers were preserved, however, at Pastebin.com (via Patrick.net).
We’ve picked out the highlights, edited for clarity. We can’t verify the identity of the foreclosure scout, but he sounds legit to us.
1. “Before you go to auction you need to actually scout the houses. It’s common for previous owners to gut the house or completely remove the kitchen. It was my job to drive to these houses and assess them, damage, repairs cost etc… Part of this was getting into the house which were many times locked, so we would break & enter all day, every day…
“Many banks will change the locks once the previous owners have been evicted but they only use 5-6 different locks. Somebody in my company somehow obtained copies of these keys which we kept with us, allowing access to many houses that would be too secure for other people to get into.”
2. “If you could gain access, a lot of times we would try and block as many windows and secure the house as much as possible. If I could block any view of the kitchen, other competitors will have to assume another 10K in cost because they cant verify an intact kitchen…”
“I would keep a bunch of old padlocks with no keys. If the garage was unhooked from the opener I could get in, padlock it on the inside and then when I left, I could walk out a back door locked from the inside. Essentially, removing the garage door as an access point. We would also put locks on side gates as well. If the other companies were using older guys to scout, they wouldn’t bother jumping the fences.”
3. “Sometimes with the little amount of time between scouting houses and and auctions, you can’t get to the bank to get actual certified checks. Before you can bid on any house you have to show your cash or checks to the auctioneer so you can’t overbid.Certain people would develop relationships with the auctioneers where they would show fake photocopied checks. If you won the house, you would just meet up with him later to pay, as well as give them a tip.””Most high rollers would “tip” auctioneers, my company would actually write it off on taxes as a “tip”. If we won a house we would meet up later and give the auctioneer a few hundred bucks. Now nothing was ever discussed about asking the auctioneer to do anything illegal, but when it came looking past not having money on the spot or saying “going once going twice sold” really fast and maybe not listening too well, the tips came in handy.”
4. “Go to auctions and hang out, half the game is actually buying the house and competing for the high bid. The atmosphere is a lot like that show “Storage Wars”, but you are dealing with WAY more money, though the biding techniques and rivalries are similar. For example, if big players are avoiding a property that appears like a win, there is obviously something you have overlooked… IRS Lean? Inside is trashed? Something screwy with the banks or the loan?Knowing the actual status of the title is VERY important, nothing is worse than seeing somebody buy a 2nd loan on a house. Essentially, he bought a loan, but not a house. Another example is a random guy who showed up, paid cash for a house that we knew had major sewage problems. If he planned to sell the house he would need to do 40K in sewage lines under a major highway, the guy basically [expletive] himself but walked off smiling from ear to ear.I guess what I’m saying is, if you want to buy a house at auction then take some serious time doing homework and learning the ropes. 95% of newcomers are gone after 1 or 2 houses because they are broke or made simple mistakes. I’d just try and find a short sale from the bank.”
