Each month, we scrutinize the housing data in FAST FACTS looking for a number that has changed significantly. If we find one, our task is to figure out why it changed and what it means. This year, we have seen significant numerical changes on only three occasions:
1. In June 2010 we saw 983 new home closings – - about double the 515 in May and the 408 in July. The reason: The expiration of the $8,000 home buyers tax credit was June 30th.
2. This month we saw Short Sales listings in the local MLS break the 50% mark for the first time. The reason: Banks are showing a preference for the Short Sale over the Foreclosure Sale.
3. This month we see 951 Bank Foreclosures, less the half of the 2,195 we saw in October, in fact, less than half of the 1,900 we’ve averaged for the first ten months of this year. The reason: the much ballyhooed but short lived foreclosure moratorium highlighted by the “robo-signing” scandal which broke in September and October.
Does that mean that we can expect bank foreclosures to snap back to their normal level of about 1,900 next month? Probably not, because of three factors:
1. It’s the Christmas season, and apparently even the Scrooge Banks have some heart . . . December 2009’s 1,325 foreclosures were the fewest for any month that year.
2. Some lingering, left-over robo-signing effect from previous months.
3. But the main reason: banks are finally realizing that they are better off pursuing short sales than they are pursuing foreclosures.
According to Fitch Ratings, “Loss severities are expected to increase between 5% and 10% on residential mortgage-backed securities in 2011 as loss mitigation costs and foreclosure expenses go up.” This is a national trend, and we believe it is part of the solution to our current housing crisis.
Just look at November’s numbers regarding types of sales in the existing homes market:
SHORT SALES 824 $125,000
AUCTION SALES 308 $91,000
REO SALES 1,597 $111,000
NON-DISTRESS 1,187 $119,900
Notice this; not only did Short Sales fetch more money than REO sales, they also sold for more than the Non-Distress (Normal) sale! When we look at a YTD comparison, we see Short Sales at a median price of $123,000 and Normal Sales at $125,000.
Here’s what’s happening, in our opinion; The fact that the majority (70%) of all sales are in the Distress Sale category dictates the pricing for ALL categories. This is unfortunate for the non-distress homeowner who is trying to sell his home, but the “inconvenient truth” here is that there are many homes for sale today in Las Vegas (78% of them vacant) and the buyer doesn’t care who owns it, or why they are selling it. All the buyer knows is that he can buy the typical home in Las Vegas today for $115,000 (the median price of all types of resale homes last month.)
Because we see another year or two of distress properties coming on the market (Remember 16% of homeowners are more than 60 days delinquent on their mortgage payment and 75% are underwater) prices are likely to remain suppressed for the foreseeable future.
However, we predicted at last January’s Crystal Ball Seminar that we “Would NOT see a tsunami of foreclosures” in 2010, and that has proved to be the case. We noted that the banks at that time appeared RELUCTANT to foreclose on homes expeditiously, and that many people where still living in their homes many months even a year or more after they stopped making their payments. Why? Because banks sensed the very precarious nature of the housing crisis. They realized that aggressively proceeding with foreclosing as their first remedy would be self-defeating, driving prices down both lower and faster. That’s the reasoning underlying the short sale. Leave the homeowner in the home, let him maintain the home, and help him out of his underwater condition.
All of leads us to this question, “If the banks today are willing to adopt a Short Sale philosophy (as opposed to a Foreclosure mentality) so that a buyer can purchase the home for less money than is owed against it, why are the unwilling to do (in effect) the same thing for the homeowner himself via an outright principle reduction?”
For the answer to this and other mysteries of the Las Vegas housing market, come to the Jan 20, 2011 Crystal Ball Seminar for only $29. Coffee bar and registration from 7:30 – 8:15 am, presentations from 8:15 – 10:00 am at View 215.
We wish you and yours a happy holiday season and a better New Year!
Respectfully Submitted,
Larry Murphy and Steve Bottfeld
SalesTraq™ and Marketing Solutions
