Kare 11's Allen Constantini put together a story on last night's broadcast on the issue that will likely define the 2010 Twin Cities housing market: short sales. Through interviews with our President-Elect Brad Fisher and others, the story informs consumers about what pratfalls to expect when attempting to buy or list a short sale.
With a recent report detailing why mortgage servicers make more profit on foreclosure than short sale or loan modification, expect to see more stories like this into the coming year. Short sales will continue to languish on the market until industry incentives realign to encourage a more efficient sales process.
Click here to view in a separate window or just check out the embedded clip below.
The end of the first-time home buyers tax credit looms just 30 days beyond a Halloween horizon, and home sales remain strong in the lead-up to tricks and treats and the impending tax credit DEADline. For the week ending October 17, there were 954 signed purchase agreements, howling upward 54.4 percent from a year ago. Almost two-thirds of these pending sales were priced below $190,000—evidence that first-time buyers are carrying a heavy share of the activity.
The strong sales we've seen over the last 15 months mean that our inventory of available homes has shrunk like the heads in a witches' brew. The 23,896 homes on the market right now represents a 21.2 percent decrease from the decidedly more scary market of 2008, and it is the lowest mark at this point in the year since 2004.
Expect home sales to begin dropping as tax credit qualifiers finish their mad rush to the closing table, but unlike those camp counselors at Crystal Lake, we'll all make it out of this market alive.
A new study from the National Consumer Law Center reveals that mortgage servicing companies (firms that oversee loans but don't officially "own" them since they've been securitized and resold to other investors) may find it in their financial interest to let homes go into foreclosure instead of working out a loan modification or short sale.
While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.
"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."
[snip]
More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.
In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.
When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.
This has huge implications for the future of the regional and national housing markets. Realtors, consumers and the general public have been consistently dumbfounded about why more lenders don't pursue loan modifications or short sales since it would seem, intuitively, that they stand to gain more from those options. The NCLC report illustrates an important fact: a big chunk of these homes are serviced by companies who stand to gain more from foreclosure.
All of this indicates that—unless policy or other market forces intervene to realign these incentives—loan modifications and successful short sales will continue to be less common than we'd like.
The fall Twin Cities housing market has been full of wild things, mostly first-time home buyers stampeding to take advantage of the federal tax credit before it expires on November 30. The week ending October 10 was no different than others we've seen this fall. There were 947 signed purchase agreements for the week, a 37.6 percent increase over the same week last year.
At 1,543 new listings we're down 4.4 percent from the same week a year ago. The trend continues: New listings haven't been keeping up with the amount of sales, bringing total housing supply down dramatically in the Twin Cities. There are currently 24,901 homes on the market, 21.0 percent less than a year ago.
The rumpus is likely to subside as we near the November 30 tax credit deadline, silencing the sales activity of the market's most active buyers.
The October Monthly Skinny Video is up online and can be found here.
This month's edition is another quickfire update on the market and digs into the effects of the first-time home buyer tax credit and the big differences between foreclosures and short sales. It's narrated by Steve Havig, 2009 President, and features some snazzy new intro and outro music. There's even a cameo from L.L. Cool J.
Our Q3-2009 Update to "Foreclosures and Short Sales in the Twin Cities Housing Market" has just been released. Here's a few highlights:
The inventory of available foreclosures is shrinking very quickly, while short sale inventory is not.
Lender-owned foreclosure inventory available for sale in the Twin Cities is down 60 percent from last year, falling from an estimated 4,886 at the end of last September to 1,960 this September. Short sales are a different story—basically holding steady over the last 12 months.
The simple reason for this growing chasm is that foreclosures are selling roughly three times as frequently as short sales. Many consumers have reported considerable delays and uncertainties associated with making an offer on a short sale home. These complications are likely the main cause of the relatively quiet sales activity.
With heavy demand and dwindling inventories, there is only 1.5 months of lender-owned foreclosure supply remaining. Conversely, there is currently 13.9 months of short sale inventory available. A balanced market between buyers and sellers should have 5 or 6 months of supply.
Autumn may be bringing colder temperatures (and snow, too: what’s up with that?!?) but the Twin Cities housing market is still hot. Contrary to the typical fall slowdown, pending sales are gaining weekly momentum as home buyers take advantage of the final days of the Federal tax credit.
For the week ending October 3, signed purchase agreements were a stunning 61.2 percent higher than last year, jumping from 647 to 1,043. New listings are a different story, however, down 8.0 percent below the previous year. Total active listings remain sluggish compared to a year ago, with the 24,354 on the market representing a 20.9 percent drop from a year ago.
There are some new stats this week that help bring some perspective on just how much better things have gotten for sellers in the last year:
- Days on Market Until Sale: at 129 days is 11 percent below last year. - Percent of Original List Price Received at Sale: at 93.9 percent is 1.8 percent higher than last year. - Months Supply of Inventory: at 6.6 is 30.5 percent lower than last year and inching closer to a balanced market.
All three indicators are important reflections of market shift. However, we can’t minimize that sellers still face tough conditions, especially in the higher price ranges where sales are still on a downward trend.
Buyer activity took a step up in September as the final days of the federal tax credit for first-time home buyers ticked toward a November 30 deadline, contrary to the typical September slowdown in the Twin Cities housing market.
There were 4,986 signed purchase agreements during the month, up 23.5 percent from a year ago—the 15th consecutive month of year-over-year increases in pending sales. Since first-time home buyers don't typically go high end, a healthy portion of these sales are taking place in price ranges below $200,000.
The influx of new buyers has helped home prices increase over the course of the year. The September median sales price of $170,000 represents a slight dip from the prior month, but the dip is less extreme than what has been typical. Compared to last September, it's a 10.5 percent decline—the lowest year-over-year decline in 17 months.
The median sales price of traditional homes in September was $200,712, down 5.3 percent from a year ago. Lender-mediated homes posted a figure of $127,000, down 12.4 percent from a year ago. Lender-mediated foreclosures and short sales made up 39.2 percent of the month's pending sales.
Foreclosures are being sold roughly three times more frequently than short sales, thus the inventory of available foreclosures is dropping more quickly than short sales.
The October Housing Supply Outlook just hit your intertubenetz. As usual, here's some quick takeaways from this dense and detailed look at supply-demand dynamics in the Twin Cities housing market:
Takeaway #1: If you're buying a home in the price range below $120,000, you're gonna have to move fast. There's only 2.9 months of supply in that range, which places it in the extreme seller's market category. The reason for the tight inventory picture? There's been a huge upsurge in home buying activity—sales are up 127.5 percent in that category over the last twelve months.
Takeaway #2: The number of new construction properties available for sale continues to shrink rapidly as builders pull back from creating new inventory. The current inventory of 2,426 listed new construction properties in the MLS system represents a drop of over 1,200 units from a year ago.
Takeaway #3: Unfortunately for builders, new construction home sales have also rapidly declined, falling by 18.8 percent (over 800 units) in the last twelve months.
Fall is officially on in the Twin Cities, but it hasn't slowed the housing market as much as usual. After the school year begins, we typically see a drop in buyer activity, but the 2009 fall market is remaining robust due in large part to the final weeks of the tax credit for first-time home buyers. There were 1,056 pending sales for the week ending September 26, up 41 percent from the same week last year.
As a direct result, inventory is dropping like a stone. There are approximately 24,500 homes for sale in the 13-county metro area, down more than 20 percent from a year ago.
The October 2009 Supply-Demand Ratio (SDR) comes in at 6.88 houses per buyer, down 22.5 percent from last year. The SDR has shown year-over-year drops of 30 percent or more for the past few months, but we're projecting that the year-over-year decline for October will be smaller because pending sales are likely to be significantly lower if the federal tax credit for first-time buyers is not extended. If the credit goes *poof*, it will remove buyers from the market.
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