Distressed properties: 'Everywhere else, but not here...'
“But ours isn’t a short sale... it’ll be better next spring... But we owe... we paid... we need...”
Brokers who still remain in the business are working hard to refine their bedside manners in the art of delivering bad news. Knowing what a seller paid, owes or is otherwise indebted makes it a difficult task to give the prognosis that no seller wants to hear.
But haven’t there always been highs and lows in the real estate market? What’s so different? (See the accompanying chart.)
Of particular note: Before ’09 the Northwest MLS didn’t even have a checkbox for selecting ‘Bank Owned’ or ‘Short Sale’; it was not a common enough occurance to merit notice. But now, seeing this localized data side-by-side is... disheartening.
Nationally, the entire real estate industry is grappling with levels of distressed properties never before seen. "It's taking so long to get out of this mess because it took us so long to get into this mess,” said Rick Sharga, former senior vice president of RealtyTrac, publishers of the nation’s the largest database of foreclosure, auction and bank-owned homes.
"Unsustainably high home prices exacerbated by what we can only euphemistically call 'really, really interesting lending practices’... led to this,” Sharga said.
Even in Edmonds, Mukilteo and Everett, the 2004 - 2007 glut of unqualified, ‘qualified’ buyers blew hot air into that infamous ‘bubble’ – more like a popped blister oozing everywhere.
“In 2010 there were 2.9 million foreclosure filings, the most ever in history and more than 1 million REO’s sold for the first time... ever.”
And Sharga estimates foreclosures would've been 20 percent higher last year if not for the freeze that resulted from the robo-signing fiasco of last fall.
“We've heard from clients that they've got thousands and thousands of foreclosure actions backed up because they've been told to hold off."
Seventy-five percent of 900,000 REO’s (lender’s vernacular for their own ‘Real Estate Owned’ assets) aren't yet listed for sale. Another 800,000 homes are in the foreclosure process.
But the most dire statistic is that 3.5 million loans are seriously delinquent, indicating a growing backlog that will create a second wave of foreclosures (RealtyTrac).
This "shadow inventory" will slow down a housing market recovery, as monthly foreclosure numbers will remain elevated through at least 2012 and REO inventories will stay high through at least 2013.
"We can’t expect to see home price appreciation until we work through these distressed assets. The housing market is years away from full recovery.”
Local statistics show that we’re not immune from this growing percentage of distressed property sales – 44 percent, 50 percent, 71 percent in the last 90 days of sales have been distressed properties, a big increase over the same 90 day period last year.
The only bright spot in this gloomy forecast is that diligent buyers previously shut out from the American Dream are thrilled to be home shopping. Even though lending restrictions are tight, ‘Mary and Ted’ who’ve watched their credit like hawks, are being approved for mortgages at unheard of rates below 4 percent. It’s a slim silver lining for a few – amidst storm clouds for so many, many others.
Taking a hard, realistic look at the bigger picture may help sellers in their decision whether to sell or not right now.
Perhaps, only possibly... the known of today may look better than the ‘not-looking-so-good’ spring of 2012.Elizabeth Erickson is owner and designated broker of Gallery Homes Real Estate. Contact her at firstname.lastname@example.org or at the office: 425-212-4300 or direct: 425-508-1405, or go to www.galleryhomesre.com.