The Top Story of 2012: Will REOs and Short Sales Take Over the Market?
The increase in REOs and short sales was a hot topic of conversation leading into 2011.
Yet here we are another 12 months later and, if anything, it has seemed to have gotten worse.
The outer neighborhoods of the city have been ravaged by REOs and short sales for several years now. But the pace seems to be quickening in the GreenZone.
If you recall from the data that G provided for the November sales data, the percentage of REOs/short sales is climbing.
November Chicago sfh/condo/th sales and median
1997 1,363 $125,500
1998 1,660 $142,995
1999 1,743 $155,000
2000 1,743 $175,000
2001 1,659 $185,000
2002 1,900 $209,900
2003 2,210 $230,950
2004 2,692 $255,650
2005 2,613 $274,900
2006 2,232 $282,542
2007 1,859 $289,900
2008 1,093 $222,500 16% (short/REO sales)
2009 1,905 $215,000 29% (short/REO sales)
2010 1,185 $180,000 39% (short/REO sales)
2011 1,379 $160,000 43% (short/REO sales)
But it’s not just a citywide problem. It has invaded even the most prestigious neighborhoods.
The percentage is up in Lakeview (for the month of November):
2010 58 12% (short/REO sales)
2011 63 19% (short/REO sales)
And Lincoln Park (for the month of November):
2009 59 10% (short/REO sales)
2010 38 11% (short/REO sales)
2011 46 17% (short/REO sales)
And in the Loop (for the month of November):
2009 62 13% (short/REO sales)
2010 40 23% (short/REO sales)
2011 48 44% (short/REO sales)
Will 2012 be the year when REOs and short sales become the norm?
More than anything I think it’s a reflection of the fact that regular sales are abysmal and the short sales and REOs are much more likely to be priced realistically.
Also, prior to about March of 2009 I don’t believe the MLS properly documented REOs and short sales. I believe that tracking was only introduced in the system around that time frame.
I think short sales/REO continue to be around 40% of the market in 2012, with the percentage in LP increasing to around 20-25%. So many people underwater, and life moves on. People continue to have to move due to life reasons (death, divorce, job, family reasons), and this will cause more to decide to cut and run at this point. This is a good thing for the long-term health of the market if 2012 is really going to be a better year than 2011 in terms of employment growth and US growth.
You have broken it down by neighborhoods in an attempt to show that it is occurring at all segments of the market. A better breakdown would be by price point. Even Lakeview and LP have inexpensive condos. I don’t think this is really occurring in the luxury market. I think there is a segmenting of the market. Ordinary condos and SFH in transitional neighborhoods are more likely to be distressed sales and high end or large condos (over 2500 sq ft) and SFH in good neighborhoods are far less likely to be short sales and REOs.
“large condos (over 2500 sq ft) and SFH in good neighborhoods are far less likely to be short sales and REOs.”
Less likely, sure, but not hardly rare. And going to be more common.
“I don’t think this is really occurring in the luxury market.”
It really *is* occuring in the luxury market, whatever definition you give to “luxury”–even if you give it a definition that’s limited to genuine upper bracket properties. Not a lot, of course, for a number of reasons. But if “luxury” just means newer/reno’d family-sized condos and SFH in the better city and suburban hoods, it is *definitely* happening, and not simply one here or there every couple of months.
Every neighborhood, including in the nicest areas, have homedebtors who are hanging on to their homes by a thread; and at best, it’s going to take at least 30 years for these homedebtors to repay all their debts. Unfortunately, most don’t have that long, and they default at a slow pace. Which is unfortunate because this bust will drag on for a LONG time; we’re only in the 3rd inning at this point. Once a week I come across people who walk away from their underwater homes. I just completed my first short sale last week (well, not me personally, but my referral) and it was a 50% off the ’04 price sale, green zone too. Pretty soon short sales and estate sales will be the norm. NO chance at a regular sale without significant loss.
people have very short memories – once the economy improves and people become more confident – they will start buying real estate. It is human nature and extremely prevalent in the United States (as opposed to many other countries) – Americans love their homes (whether it be a condo or SFH). While I actually theoretically 100% agree w/ HD, G, Bob and everyone else as to why prices SHOULD go down, I HIGHLY doubt that this will happen for the reasons stated above.
and for those of you who want a good deal on an REO, remember that banks love to clear inventory at years end! Oh, probably should have mentioned this a month ago so you could close in time. 😀
oh tfo, why you got to go harsh on urbanmoms dream world so early in the morn. dont you know it’s only the poors with these problems
” NO chance at a regular sale without significant loss.”
Gawd, when you make ridiculous overstatements like that, it ruins an otherwise sound comment.
Banks can’t sit on these homes forever… it’s been 3+ years since the rout began and eventually, their capital (or what’s left of it) has to be put back to work. 2012 will see an increase in this activity across all neighborhoods/property types as banks are better capitalized to book the losses.
“A better breakdown would be by price point. Even Lakeview and LP have inexpensive condos. I don’t think this is really occurring in the luxury market.”
I did this analysis last years. Check out the last graph: http://www.chicagonow.com/getting-real/2010/08/what-does-chicagos-foreclosure-short-sale-market-really-look-like/
I doubt it’s changed much just based upon what I see. Back then the data showed that distressed properties were primarily at the lower end.
Actually, that’s not the post I was looking for. Sorry. Here is more current data and it shows it in terms of % distressed properties: http://www.chicagonow.com/getting-real/2011/04/with-all-the-foreclosures-and-short-sales-why-cant-i-find-a-deal/
Makes sense Gary, thanks.
Thanks Gary for the graph and analysis, it explains a lot.
One factor I’ve seen that would account for some of the increase across the board, is that many are choosing to sell short or walk-away as a financial strategy. It is no longer necessary (with many banks) to show financial hardship to qualify for a short sale. This is mainly due to the banks realizing that some of their borrowers are selecting to dump these negative investments and take the credit hit. So they will with some coaxing allow a financially fit borrower to sell short. This of course is not the scenario for the bulk of the SS/REO properties out there. But in the more affluent areas, I’m sure this strategy is causing the overall percentage to rise more than one would expect.
“Will 2012 be the year when REOs and short sales become the norm?”
Hmm. I’d guess that they increase. Last June the WSJ reported that
“19.7% of mortgages in banks’ portfolios were delinquent at the end of March [2011]. By contrast, nearly 6.8% of mortgages backed by Fannie and Freddie were nonperforming, as were 11.4% of all mortgages.”
http://online.wsj.com/article/SB10001424052702303763404576416090501569426.html
Gary,
You probably won’t see this, but compliments on the graph. Nicely scaled. Very interesting how that angles up ‘n to the left off that 430’ish pivot and how the slope continues to increase the entire way down. Says quite a bit about effectiveness of applying resources to different economic levels.
Thank god for the REO’s.
I’m dodging bullets every day.