Tuesday, June 03, 2008

The local foreclosure market...

It is no secret that there are many foreclosure (or bank owned, or lender owned, or REO -- it is all the same) properties on the local real estate market. And yes... these properties are having an impact on the local market. I've been tracking listings in the MLS that are listed with the foreclosure tag since the beginning of the year with the idea that once I had a decent set of data I would share my findings with the readers here at MOCO.

Before I get to the boring stats and figures I wanted to share parts of a recent blog post from Bloodhound Blog, written by Greg Swann. Click on that link and read the whole thing it is quite good. It is a different perspective than what you might normally see and I'm going to copy a few bits right here to add to the discussion...

If you’re looking for the bottom of the real estate market in Phoenix, chances are it’s right up the block. It’s that house with the jungle of overgrown weeds in front.

It used to be for sale. Then it was a short sale. By now it’s lender-owned. A year ago it might have been listed for $250,000. Now the price has been slashed to $120,000 — maybe less.

While Mr. Swan is writing about Phoenix, I'm sure many here in Kingman have noticed similar instances in our neighborhoods as well.

What is your home really worth right now? It’s worth as much as the lowest-price lender-owned comparable plus the cost of returning that home to turn-key condition plus a small convenience premium. In other words, if the lender-owned house sells for $120,000, and if it will take $10,000 to make it as nice as your home, then your home is worth $135,000 — $140,000 at most.

The reason I'm copying that passage is because it would take me about 10 paragraphs to state the same thing that Greg did in two sentences. I'm saving both me and you time and effort.

And finally...

And if you’re not willing to sell you home for that price? Get it off the market right now. It will not sell for more, but the surplus of over-priced inventory is a false signal to buyers that the market has not found its bottom.

If you must sell into this market, you’ll sell at the market price. If you can afford to wait, you will almost certainly do better after the market has turned.

If you are currently trying to sell your property on the market right now, I ask that you read the above to yourself a few times and let it sink in. Go ahead... I'll wait.

Okay?? Good, we'll proceed.

I'm about to share some facts from the research that I have done using the MLS... this means... of course... the disclaimer...

Disclaimer... all data compiled for this report comes from the WARDEX Data Exchange and does not include any sales activity from outside that resource. All research is done only on single family homes and there is no inclusion of modular homes, commercial properties, or vacant land. The geographical area researched includes; all areas within the boundaries of the city of Kingman, north Kingman, the Hualapai Mountain area, and the Valle Vista subdivisions. Click here to see maps of the included area's.

Now that's out of the way. I'm going to compare single family homes listed as 'foreclosed' against the regular data that I share in my listing and sales reports.

On June 1 of this year I posted that there were 596 SFR's listed for sale in the current market. Of those, 56 are listed as 'foreclosed' (or about 9.4% of the active listings). So practically one home in ten on the market is a bank owned property. I've never tracked this kind of data before so I have no historical data to compare this against. I can't say for certain if 10% of listings is more or less than 'normal'. It does, however, seem like a high ratio to me.

Now since January 1 of 2008, my geographical research area has shown me 195 total sales through the end of May (not an official number since I haven't finished the final May sales report as of yet). Of these 195 unit sales... 59 of them were tagged as 'foreclosed' (or about 30% of the units sold so far in 2008).

Banks... are NOT human. Banks and lending institutions that have had a borrower default on them become the owner of record of a property. Banks won't live in those properties, all banks want to do is get the non-performing asset (liability) off the books. Banks are WILLING to take losses, drastic losses in some cases, because there are just so many non performing properties.

Banks do not read this blog so they really can't revel in the fact that they are mopping the floor against humans in the race to sell property in the current market. Banks are an easy mark for the right buyer... and the banks simply do not take it personally. Bank owned properties are easier to sell (at the moment), easier to negotiate against for an even better 'deal', and are practically impossible to compete against. The numbers simply do not lie.

More comparisons...

Lets take a look at what I posted about the new listings in May...

The average newly listed home in May has 2.99 bedrooms, 2.04 baths, a 1.99 car garage, with 1,641 square feet of living space and was built in 1979. The average asking price per square foot of living space is $130.

Now let's compare that with the active 'foreclosed' listings on the market...

The average 'foreclosed' listing on the current market has 3.14 bedrooms, 2.07 baths, a 1.77 car garage, with 1622 square feet of living space and was built in 1994. The average asking price per square foot of living space is $96.

Non-humans are asking an average of $155,422 dollars to part with the property.

Humans are asking an average of $213,108 to part with their property.

For all things considered... the properties are comparable... the asking prices?? Not so much.

Humans are asking 27% more dollars than non-humans for a similar home. Fellow humans... I thought we were supposed to be smarter than non-humans, more creative, or at least more responsive. Apparently, we did not get the memo.

Now let's look at actual sales figures and I will use the sold data from Jan 1 through the end of April (since my May report is not done yet).

The average home sold from Jan. 2008 though the end of April 2008 had 3.1 bedrooms, 2.0 baths, a 2.0 car garage, with 1599 square feet of living space, and was built in 1994. The average price per square foot of living space was $112.

The average price for each unit sold was $180,110.

Keep in mind that the above figures INCLUDE the sold listings that were tagged as 'foreclosed'. The figures below are only sold listings tagged as 'foreclosed'.

The average home tagged as 'foreclosed' sold from Jan 1 2008 though the end of May of 2008 had 3.27 bedrooms, 2.19 baths, a 1.83 car garage, 1604 square feet of living space, and was built in 1991. The average price paid per square foot of living space was $93.

The average price for each unit sold was $149,401.

Again, we are not seeing that big of a difference between the actual homes that non-humans and humans sold since the first of the year. Yet... hooray for humans here because they are getting 17% MORE dollars for their property than non-humans.

Let's keep one thing in mind about non-human owned property. It typically is in a state to some degree of disrepair, or in other words these properties are not usually in peak marketing condition. Often these bank owned properties need a bit more than just 'a little TLC' as often stated in advertising. I used to market property for Homesteps (part of the FreddieMac deal) and the homes I listed always needed some work (and the bill for repairs sometimes reached into the thousands of dollars).

However, that was a different market and non-human banks were actually trying to get very top dollar in a market that was increasing in value by the minute (it seemed). Banks were willing to invest $3,000 to $5,000 in a property to bring up the listing to a better standard for marketing because they'd probably get double that amount in return once the property sold. While I do not list bank-owned property at this time, I'm willing to bet that very little is being done to 'improve' the property. In many cases a buyer is buying a home 'as is', and I fear what 'as is' looks like in this market.

One last set of comparison numbers to gander at.

Price reductions and total concessions... yes... this market favors the buyers so much that even non-human banks have been pinched in negotiations. Bank owned properties that sold in 2008 conceded an average of $26,627 dollars. Human owned properties had to reach just a little deeper to the tune of $27,355 dollars so in essence ALL sellers are together in the beat down they are getting at the hands of the buyers. The difference is though... the banks can always concede more without feeling the pain the humans sellers will. Losses to banks are merely 'written off' (sucks for bank CEO's and other levels of management I'm sure... but alas... CEO's are human and feel pain).

Yet here we are human sellers... fiercely competing against each other (9 out of 10 listings are human owned) while the non-human banks are capturing 3 out of 10 sales. By my estimations (and they are approximate at best), there is 11 months worth of human owned homes on the market right now in the Kingman area... while only about 5 months worth of non-human bank owned listings.

The question most asked of me over the last year or so has been "so when will the prices bottom out??" and I can't say that I've actually ever had a good answer. I'll give it a shot this time though... I say prices bottom out once non-human banks begin the process of competing with human sellers for MORE dollars than what they are willing to take today.

For now though, the non-humans have some advantages working in their favor (as evidenced by the rate of sales compared to the human sellers). When the banks begin competing for more dollars is not a guess I'm willing to make. Banks are listing basically the same home a human seller is for 27% less dollars, banks have less competition at the current market levels (based on price), and banks can reduce price further if need be to get the liability off the books.

So where are we?? If you are a seller... or thinking about selling in today's market... I ask that you read Mr. Swann's article again. I've offered up plenty of facts and figures about our own local market here today. Apply these facts and figures to the formula Greg spoke about in his post. See where that puts your property. Can you afford to sell at that price?? If the answer is NO, then you may want to rethink your decision to sell... for now at least.

If you liked this data on 'foreclosed' property, I'll probably run a recurring report in addition to sales and listings reports. Probably on a quarterly basis, especially since I don't have a ton of historical data saved up. In the meantime, if you want a report sooner than that email me a request and I'll get one out to you (time permitting) with the data I do have.

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