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Distressed-Listings Decline 66%

Why would people list their home as a short-sale?

Because their lender is applying pressure to either make payments, short-sale, or be foreclosed. At least that is the old-fashioned way of banking.

It’s possible that, after months or years of delinquency, some might start making their payments again if they receive that magical loan-mod/principal reduction package. I just haven’t met anybody who has.

Maybe I’m a skeptic, but these stats make it appear that the banks aren’t applying much pressure – distressed listings are 1/3 of last year’s total:

NSDCC Detached-Home Listings, First Quarter

Listing Type 2012 2013
REO
56
20
Short-Sales
125
42
Regular
1,089
1,216
Totals
1,270
1,278

It might make sense for banks to be lenient in depressed areas where sales and prices are struggling, but around here we are starved for inventory. The policy is working so well that it may last a long time – the ultimate can-kicker!

San Diego County Filings

Meanwhile, another 85 new listings hit the MLS since our last reading, and we had 81 new pendings with a few cancelled/withdrawns – demand is raging:

Date NSDCC Active Listings Avg. LP $$/sf
Jan 14
649
$722/sf
Feb 4
667
$716/sf
Feb 10
679
$713/sf
Feb 25
678
$719/sf
March 6
727
$703/sf
March 11
744
$698/sf
March 16
746
$703/sf
March 23
755
$712/sf
March 31
752
$717/sf
April 5
780
$704/sf
April 11
780
$710/sf

This is the most important indicator to watch – if the active inventory starts to grow, it means buyers are backing off.

REOs Winding Down

The counts of local bank-owned properties are not out in the open, and people are wondering – are there loads of REOs waiting to hit the market?

Here are the SD County REOs from the tax rolls, compared to April 8, 2008:

Lender 4/8/08 Today
Deutsche
1,066
49
US Bank
726
62
BofNY
561
37
WFB
502
44
HSBC
451
30
Citi
144
25
BofA/CW
117
108
JPM Chase
90
18
Totals
3,657
373

With a county population of 3 million people, there should be adequate demand to soak up the remainding REOs once they finally hit the market.

Distressed-Sales Count

Equity sales, that is sales of non-distressed properties, now constitute two-thirds of all home sales in California, compared to less than one-half only one year ago.  A report from the California Association of Realtors® (C.A.R.) puts the share of equity sales in the state in February at 67.1 percent, compared to 64.4 percent in January and 46.7 percent in February 2012.

This is the highest share of equity sales since April 2008.

Short sales made up 19.9 percent of sales in California in February compared to 21.5 percent in January and 24.8 percent a year earlier.  Sales of lender-owned real estate (REO) represented 12.6 percent of the home market in February, down from 13.7 percent the previous month and 28 percent in February 2012.

C.A.R.’s Pending Home Sales Index (PHSI) rose 8.7 percent from a revised 101.4 in January to 110.2 in February but was down 8.2 percent from the index in February 2012 of 120.  The index is based on signed contracts and is a forward-looking indicator of future home sales.

The annual decline of pending sales might be attributed to the tight inventory of available homes.   The Unsold Inventory Index for REOs was unchanged from January to February at 2.0 months while the Index for short sales was 3.3 month and for equity sales it was 3.8 months.

http://www.mortgagenewsdaily.com/03252013_california_home_sales.asp

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Closed sales of detached homes in North SD County Coastal, last 30 days:

REO:  5  (2%)

SS: 15  (6%)

Regular: 239  (92%)

It’s hard to believe that there are so few distressed sellers.  People have suggested that the banks are adjusting to the California Homeowners Bill of Rights, which was announced in July, 2012.

It’s been nine months now, maybe they are getting back on track?

San Diego County Filings

Glimpse of the Shadow Inventory

Here is a video tour of a few houses in the shadow inventory – ones that are bank-owned, but not listed for sale, but presumably coming to market at some point.

Yes, you could consider the 412 SFRs on the NOD and NOT lists as part of the shadow, but who knows if they will ever get foreclosed.  The same goes for those in default but not noticed – starting January 1st they can’t receive a notice until they have been through the entire loan-mod process.

As recently as the first half of 2010, there were 270 homes on average being foreclosed every week in San Diego County.  Now it’s down to around 100 or so per week:

San Diego County Trustee-Sale Results

There are only 16 SFRs in our La Jolla-to-Carlsbad region that are bank-owned, but not on the market.  Occupants were probably offered cash-for-keys, but those who prefer to pay lawyer fees instead can probably extend their stay for quite a while.

Here are five off-market REOs, and one listed for $699,900, well under it’s opening bid of $967,632:

REOs vs. Short Sales

We have been told that banks and servicers are now using short-sales, instead of foreclosures, as their primary defaulter-disposal method.

It appears that the conversion is well underway in San Diego County – here are the number of residential distressed-sales and average pricing for the six months between April 1st and Sept. 30th:

San Diego Co. 2011 2012 % Chg.
REO Sales, # 3,778 2,381 -37%
REO Avg. $/sf $178/sf $184/sf +3%
Short Sales, # 3,465 4,404 +27%
SS Avg. $/sf $195/sf $189/sf -3%

Yes, the conversion from foreclosures to short sales is happening, though it doesn’t look good for the pricing trend. You could call +/- 3% just statistical noise, but for those who believe that the lenders save big money by short-selling vs foreclosure should think again.

The fraud seems to be getting more outrageous too – did you see the one yesterday that if the realtor would have listed it at market value, the seller would have made money? Instead, he listed it at $100,000 below the loan amount, and called it a short sale – at least for the usual five seconds before he withdrew the listing!

(withdrawing a SS listing is common when the listing agent has his own buyer and doesn’t want competition – he shows the bank a copy of the listing taken during the five seconds that it was active)

Discussing The New Normal

Here is the 59-minute video of the discussion from the recent Zillow Forum On California Housing – the title of this discussion is:

Is it a Good Time to Buy in California?: The Housing Market’s New Normal

I agreed with Mark around the 41-minute market that we are heading for a paralysis, where the investors run out of reasonably-priced supply to purchase, and equity sellers keep holding out for higher prices. We have become dependent on the distressed sale!

Suspicious Evidence

The latest C-L HPI came out on Tuesday, reporting the price increases in each market.  They have two categories, the full-market number that includes “distressed sales” (short sales and foreclosures), and then another index that excludes “distressed sales”.

We don’t know the mix or types of properties, so this is pure speculation.  But if the indexes are properly weighted to give an accurate depiction of the pricing, can we conclude a couple of things from this data?

City/Area (CSBA) HPI (excl. distressed) HPI (incl. distressed)
Phoenix
+16.9%
+21.8%
Inland Emp
+6.4%
+4.0%
Los Angeles
+6.0%
+4.0%
San Diego
+4.3%
+0.8%
USA
+4.9%
+4.6%

1.  Investors have gone wild in Phoenix, with pricing of distressed properties going up faster than non-distressed.  If they have more REO listings that are priced well, are easy to see, and have a fair bidding process, they should sell faster and for more money than those that are priced incorrectly, are difficult to see, and struggle to create a fair bidding process.

2.  The other areas show slower price gains in the distressed-properties category, which is what people expect – that distressed properties sell for less. But not for much less.

3.  San Diego has the biggest negative difference between distressed and non-distressed categories.  Every REO sale that I see looks like a fair bidding process and a full-value sales price – it must be that the short sales are dragging down the pricing in that category.  With the push towards fewer foreclosures and more short sales, don’t be surprised if this category suffers – because realtor manipulation of the short-sale process is wide-spread in San Diego County.

The +0.8% sticks out like a sore thumb.  The index isn’t measuring just distressed sales only – they are mixed in with the full market.  Yet look how they skew down the data – how can distressed sales cause a right turn in the springtime data when, without them, the trend was full tilt boogie?

CHART NCT house price index

REO/Short Sale Notes

BofA conducted a realtor seminar today on REOs and short sales.

Some of the highlights:

1.  Short sales average three buyers per closing (average two fallouts before the third one sticks).

2.  18% of short sales have some elements of fraud.

3.  They forgive deficiencies on all first mortgages in California, and most second mortgages.

4.  Of those foreclosed, 30% never attempt a loan-mod or short sale (strategic defaults).

5.  Nationally, REOs sell for 12% less than short sales.

More commentary on REO sales:

Short Sales Inhibit Pricing

You keep hearing that banks and servicers have changed course, and are pushing defaulters to short sale, rather than face foreclosure.  It’s been backed with the common belief that short sales cost less for the lender, and save the borrowers’ credit.

Does the new commitment to short sales appear in the stats?  Banks did close 32% more short sales this summer vs. the June-August period last year.  But as you can see below, it looks like they just stepped up production to the next plateau, instead of creating a whole new machine.

There are 3,527 short-sale listings marked ‘contingent’ in San Diego, which are those waiting for lender approval.  Most will probably be approved slowly over the next few months, helping to bolster the year-end stats and make the 4th quarter market look stronger than it really was.

How does short-sale pricing compare to the non-short-sale pricing?

If it weren’t for short-sales, statistical increases in pricing would be more obvious.

If bankers were serious about market recovery, then they should cancel this insane pandering to defaulters.  It would encourage the honest bill-paying folks, and help clean the bums out of the realtor community.  Instead, short sales are just the latest can-kicking device!

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