Lack of foreclosures leaves buyers wanting for more deals
Housing markets across the country are currently experiencing a home foreclosure drought. A lack of foreclosed homes in the market has led to fewer discounts for home buyers and an increase in prices of distressed homes. Investors, first time buyers and buyers who are generally looking for a good deal on a home have kept demand and competition high while supply has been low.
Contrary to popular belief, this has caused a standstill in the housing market. Industry experts are predicting improvement, however, as more foreclosures are streaming in. Foreclosures are necessary to inject life into the housing market – in order for a recovery to take place, prices must first decrease, and an abundance of foreclosed properties must hit the market. In Phoenix-Metro, a monthly volume of about 7,000 foreclosure (being started) is considered normal.
Home prices have been rising consistently over the last year. The number of distressed sales, or sales that occur urgently and usually at a loss in order to obtain money in an emergency, has risen compared to full-priced sales. In October, home prices (including distressed sales) rose 6.3 percent compared to the previous year, the largest rise since 2006.
The cost range between discounted and full-priced homes is decreasing as interest in foreclosures, and the number of foreclosures on the market, is increasing. The end to the foreclosure drought is on the horizon, which means good things for the future of the housing market.
Foreclosure Sales – Slowly but Surely
Demand for foreclosed properties is high. The low prices are sought after by anyone looking for a bargain on a home. The demand, however, has not been justified by the product in recent months. In October, for example, a mere 58,000 homes were sold in foreclosure – a decrease of 25% from September and 17% from 2011.
Why such a low number? While foreclosures may be rolling out slowly, this does not mean there aren’t any to roll out. In fact, an estimated 1.3 million homes are waiting to be completed in a foreclosure sale, a third of all foreclosure sales that occurred since the beginning of the housing crisis four years ago.
The AG mortgage settlement that occurred earlier in the year definitely helped to bring about the 1.5 million foreclosures that were first in the pipeline at the beginning of the year, but they didn’t hit the market in the way most experts expected. Instead of all being released at once, causing a major flood in the market, they are slowly streaming in.
This is an extremely smart decision – if all foreclosed properties would have been put up for sale at the same time, prices would have remained low, driving down the competition and creating a draught that would have been a major concern. Now, interest remains high in foreclosed properties as a handful are hitting the market at a time. At this rate, the market will continue to see a steady rate of foreclosure completions for many more years. Even the lender owned properties are only trickling back on the Arizona MLS, as it was learned Freddie Mac and Fannie Mae basically joint ventured to profit off of keeping the assets on their books (I did a post about this on my RoyceofRealEstate facebook page on Dec 19th, 2012).
The delays may not be all strategy, though. In many states, new processing standards that will not go into effect until the start of next year are forcing lenders to delay foreclosure processing. Related to those new processing standards are new rules being implemented by the Consumer Finance Protection Bureau that will regulate bad practices and processing complications with systematic standards and procedures.
In addition, the increasing popularity of short sales is having a major effect on the market. Some homes, instead of going through foreclosure, are going through the short sale process, which is decreasing the inventory. In the second quarter of 2012, short sales increased 18 percent from the previous year and made up 14% of all sales. Although the short sale process in Arizona remains much the same, the number of short sales completed as a % of monthly sales continues to decline.
A Comfortable Year, a Comfortable Future
Once new standards are set, and as demand continues to be high, foreclosure completions are predicted to pick up next year. Just in the last year, visible inventory (foreclosed homes that are up for sale) has decreased by 200,000 homes and shadow inventory (foreclosed homes in the pipeline for completion) has decreased by 300,000. This, combined with the 100,000 short sales that have been made, is a sign of a very healthy market that is ready to grow in the coming months.
Of course, the numbers are largely different between local markets. Although overall most foreclosures occurred in the Midwest and Northeast, the top 5 markets with the highest number of completed foreclosures – California, Texas, Michigan, Georgia and Florida – spanned the entire country. Together, these states contributed 49% of all foreclosures completed last year.
The top 5 states with the least completed foreclosures – North Dakota, South Dakota, Maine, Hawaii and the District of Columbia – were all ones with small populations.
The results were very similar when reviewing foreclosure inventory. North Dakoka, South Dakota, Nebraska, Wyoming and Alaska made up less than 4 percent of all available inventory (mortgaged homes). New Jersey, New York, Florida, Illinois and Nevada had the most available inventory, making up 34% of mortgaged homes.
In the next year, it is expected that the inventory will be more evenly spread out. As long as inventory and demand remain high, the country will see a steady flow of home foreclosures precipitating into the housing market.
What do you think?
This content was originally posted by Tracy “Royce of Real Estate” on www.RoyceOfRealEstate.com/blog
Tracy is an Arizona Short Sale Realtor, Investor, Rehabber and Foreclosure Expert. She is also an avid blogger, vlogger, and consultant on all things Arizona Foreclosures.