Subscribe to the NewsUpdate on the Distressed Properties Market
By Admin
Recently we had the opportunity to watch a presentation by Rick Sharga, a senior VP at RealtyTrac, talking about the national distressed property market. RealtyTrac collects data for 94% of US households by hiring contractors to sift through public records data at county courthouses in 2200 counties throughout the country. We’ll try to relate this information to our local situation, but first let us understand the market of distressed properties, that is, properties either in foreclosure (where the bank has taken the home back), or where the seller has received notice of a trustee sale (the bank has told the homeowner they intend to foreclose, but may not yet have established a date), or where the seller is in default (where the seller has missed one or more payments to the bank, but has not yet received notice of a trustee sale).
As a baseline there are will be less than 5 million existing home sales in the US this year and there will be less than 500,000 new construction home sales. Last year there were about 2.8 million foreclosures, and this year RealtyTrac expects about 3.2 million foreclosures. 70% of the foreclosure activity will occur in 10 states (not Washington), but the numbers are so huge that they will have a significant impact on other markets as well, including ours. There are about 900,000 REO (bank owned) properties listed at RealtyTrac. Only about a third of these properties are listed for sale in the multiple listing service. There are about 1.2 million foreclosure properties (having received notice of trustee sale or other formal proceeding to sell the property). Only about 20% of these properties are listed in the MLS (usually as short sales). In addition, about 5.5 million mortgages are seriously delinquent (having missed 2 or more payments). Of these delinquent properties, perhaps 4 million will eventually foreclose. These homes in foreclosure or in distress, but not listed in the multiple listing service form what is known as the shadow inventory.
The first wave of foreclosures was from subprime loans. As a result of the recession and unemployment, there has been a second wave of foreclosures that is now hitting us. For every 6-10 jobs lost, there has been one foreclosure. It’s possible we could experience a third wave of foreclosures as a result of the mortgage payment resets from Alt-A and Option ARM loans in 2011 and 2012.
Based on the inventory of distressed properties and current rates of distressed property sales, the amount of foreclosure activity won’t fall off until late 2011, and will remain at high levels through 2012. Sales of distressed properties will continue to be significant through 2013. Banks will drag out the processing of these sales, as they have been doing, to mitigate against an uncontrolled drop in prices. Sharga expects home prices to remain within a narrow band - plus or minus 5% during this period. While in Kitsap County only about 9% of the 1800 some active listings were distressed properties (short sales or bank owned properties), RealtyTrac currently shows 1370 Kitsap County homes with either in default, in foreclosure, or bank owned properties. Thus the MLS only lists about 12% of the actual distressed properties in Kitsap.
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