Foreclosures and median sales price; any correlation?

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Yesterday, KTVN Channel 2′s John Potter aired a report on decreasing foreclosure rates in Reno-Sparks. In case you missed it, you can catch John’s report, Nevada, Washoe County Foreclosure Rates Tumble, in the video below…

In preparing for his report John Potter contacted me to provide some market data and commentary. While compiling the numbers for the story I found an interesting trend that I thought I’d share with the blog. Specifically, the relationship between the number of bank-owned properties (REOs) sold and median sales price. Namely, the higher proportion of REOs sold in a given month, the lower that month’s median sales price.

Now, perhaps many readers will view this observation as nothing novel or noteworthy, but when I pulled the numbers I was surprised with just how striking the relationship was. Check out the year-to-date numbers in the table below…

month (2012) percentage of REOs median sales price
September 12.2% $178,000
August 12.8% $175,000
July 15.8% $165,000
June 20.6% $170,000
May 24.0% $164,750
April 26.2% $151,100
March 31.9% $149,900
February 41.9% $145,500
January 39.1% $135,000

If any statisticians reading this would like to calculate the correlation between the proportion of REOs sold and median sales price, I’d love to hear what you come up with. If you would like additional data for your calculation, let me know.

And if you really would like some fun, use your analysis to predict what October’s median sales price will be based on the percentage of bank-owned properties sold. At the moment, less than ten percent (9.8% to be precise) of houses sold in October have been REOs. Assuming that percentage holds for the entire month, what will be October’s median sales price?

Lots of Halloween-related events this weekend. Have a safe an enjoyable weekend.

About Guy Johnson

I am a licensed Nevada REALTOR® living and working in Reno, Nevada. Give me a call at 775-722-4011. My team and I will be happy to assist you with your real estate needs.
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15 Responses to Foreclosures and median sales price; any correlation?

  1. Wendy says:

    The answer to your question is $178,252 (p = 0.0003 and R squared = 0.87). That is a good correlation, but I am just a biologist who happens to own a house in Reno so I can’t really tell you anything about causation. If you want the gory details, email me and I’ll send them.

  2. Guy Johnson says:

    Thank you, Wendy! I appreciate your input.
    I usually post the median sales price for a particular month about five business days following the end of that month. Can’t wait to see how close October’s median comes in to predicted value of $178,252.

  3. wendy says:

    Yes well the 95% prediction interval was pretty big. Something like, there is a 95% chance the median home value will be between 190,000 and 160,000 which you probably could have guessed but there you go, the joys of statistics.

  4. RG3 says:

    Guy the story shows the dramatic decrease in notice of defaults but what happened to those houses? Mr. HUD indicated that people are making their payments again because the “rate of delinquency is down”. The only way to track loan delinquency, that I know of, is by tracking the notice of default recordings so of course it’s down. I find it hard to believe that everyone suddenly started making their house payments last October when the new law took effect. You indicate that new foreclosure listings are down 80% and there’s a 34% decrease in available foreclosure properties. Based on the report Mr. Potter uses in his story the average monthly # of NOD’s for 12 months previous to AB284 was 520….the 12 month average after AB284 is 72. Over 5000 houses vanished. Where are those houses? Has there been a dramatic increase in short sale listings and closings?

  5. BanteringBear says:

    Quit asking the tough questions, RG3, you’re going to harsh their Kool-Aid high. To answer your questions, all of the stats are artificial due to intense market manipulation. If you wonder where the houses went, just drive through any residential area in northern NV. There are vacant houses everywhere, which are not listed on the mls or for sale period. It’s a positively MASSIVE shadow inventory. I was golfing at Dayton Valley a while back. The fairways are lined with empty houses, most of which do not appear on the mls.

  6. Guy Johnson says:

    RG3,

    Thank you for your comment. You’ve raised some good questions. The houses you refer to have not vanished. Unfortunately, it is difficult to know the current state of these properties. Perhaps a few homeowners and their lien holders have worked out a loan modification. Perhaps recent rising house prices have allowed a few homeowners to sell their properties as normal sales. Perhaps the lien holder has allowed the property owner to short sale his/her home. Perhaps, as BanteringBear suggests above, the houses are sitting vacant, and not listed on the MLS.

    In answer to your question regarding the number of short sale listings and closings, I have pulled the following 13months of data from our MLS…

    month # of short sales listed total # of listings percentage of short sale listings   # of short sales closed total # of sales percentage of short sale sales
    Sep 2012 241 608 39.6%   221 543 40.7%
    Aug 2012 279 704 39.6%   242 642 37.7%
    Jul 2012 287 749 38.3%   228 606 37.6%
    Jun 2012 287 773 37.1%   213 599 35.6%
    May 2012 264 720 36.7%   230 625 36.8%
    Apr 2012 263 675 39.0%   184 598 30.8%
    Mar 2012 275 702 39.2%   208 631 33.0%
    Feb 2012 253 613 41.3%   158 534 29.6%
    Jan 2012 276 681 40.5%   189 520 36.3%
    Dec 2011 174 519 33.5%   213 618 34.5%
    Nov 2011 209 578 36.2%   206 581 35.5%
    Oct 2011 248 623 39.8%   197 586 33.6%
    Sep 2011 260 710 36.6%   185 664 27.9%
    13-month average 255       206  

    These numbers include both houses and condos. I do not observe a dramatic increase in the number of short sale listings. There appears to be a small increase in the number of short sale closings, but that may be attributed to the decrease in the REO inventory.

  7. E.Edward says:

    Yeah….delinquent borrowers just found out they get another added year of free rent so they stated making their mortgage payment. What?

    There’s no rocket science necessary here….

    (1) 11+ states have enacted the robo signing/moratorium law which Is making it just about impossible for these banks to act on nod/foreclosures…even if they wanted to { and coincidentally these were the hardest hit states… Hmm?}

    and/or

    (2) The 2007 mortgage tax relief program expires end of December 2012. {these banks know this and they know these delinquent homeowners are now going to be liable for the thousands in taxes on the losses, so there in no hurry to foreclose }

    There’s the inventory …..and its stacking up big-time!

  8. GreenNV says:

    Interesting report from the New York Federal Reseve Bank regarging REOs. An Assessment of the Distressed Residential Real Estate Situation. Click through to State REO Data – only 7882 REOs currently in the banks’ inventories in NV. A good number of them are probably listed or in escrow, and a large percentage are probably in LV.

    Would it be too cynical to predict that Wednesday November 8 will see a record number of NODs filed?

  9. RG3 says:

    Thanks Guy. I hate to ask but can you pull short sale data back to the 12 months previous to AB284 so we can compare it to the post AB284 data? Seems like we can debate the actual # of “shadow inventory” houses but everyone agrees it’s a large # when compared to our market size. Possibly a 10-12 month supply on its own and growing every month. How does this unaccounted for supply of homes eventually get cleared from the market?

  10. Guy Johnson says:

    RG3, Below please find the short sale data back to September 2010. Numbers include houses and condos for Reno-Sparks.

    month # of short sales listed total # of listings % of short sale listings   # of short sales closed total # of sales % of short sale sales
    Sep 2012 241 608 39.6%   221 543 40.7%
    Aug 2012 279 704 39.6%   242 642 37.7%
    Jul 2012 287 749 38.3%   228 606 37.6%
    Jun 2012 287 773 37.1%   213 599 35.6%
    May 2012 264 720 36.7%   230 625 36.8%
    Apr 2012 263 675 39.0%   184 598 30.8%
    Mar 2012 275 702 39.2%   208 631 33.0%
    Feb 2012 253 613 41.3%   158 534 29.6%
    Jan 2012 276 681 40.5%   189 520 36.3%
    Dec 2011 174 519 33.5%   213 618 34.5%
    Nov 2011 209 578 36.2%   206 581 35.5%
    Oct 2011 248 623 39.8%   197 586 33.6%
    Sep 2011 260 710 36.6%   185 664 27.9%
    Aug 2011 322 848 38.0%   192 645 29.8%
    Jul 2011 275 799 34.4%   162 607 26.7%
    Jun 2011 311 916 34.0%   158 634 24.9%
    May 2011 315 923 34.1%   167 605 27.6%
    Apr 2011 324 942 34.4%   159 526 30.2%
    Mar 2011 351 829 42.3%   172 594 29.0%
    Feb 2011 278 718 38.7%   148 463 32.0%
    Jan 2011 353 832 42.4%   164 430 38.1%
    Dec 2010 220 566 38.9%   163 564 28.9%
    Nov 2010 251 672 37.4%   173 485 35.7%
    Oct 2010 246 692 35.5%   158 491 32.2%
    Sep 2010 298 759 39.3%   174 552 31.5%
  11. Sully says:

    Guy,

    I’m a bit surprised you haven’t mentioned the NV Supreme Court ruling for MERS. This basically puts MERS back in business, which many people believe AB284 caused it to cease and desist. Here is a link, which contains a link to the full case for the lawyer types: Nevada Supreme Court gives MERS big victory

  12. Guy Johnson says:

    Thank you for sharing the link, Sully.

  13. Matthew says:

    @Sully, notice the bump in NODs for October?

  14. CommercialLender says:

    Does anyone know if a bank has a defaulted loan that was sold to Fannie, Freddie or HUD, or a CDO, if it would still be listed as REO on their books? Seems to me it would be a serviced loan, but not REO. So, since Fannie and Freddie own so much of this junk and the banks en masse are no longer on the brink of illiquidity, these shadow inventory homes are still there, just not for sale, rented or otherwise.

    Also, if the banks have taken a book value write down on the loans and given forbearance to the borrower either in writing or in practice, they would neither be REO nor NODs. But they would not be very healthy loans, either.

  15. Matthew says:

    @CommercialLender, we’re presently not requiring banks to mark these assets down until sold.

    This accounting fraud, coupled with the near-zero discount rate (while offering bonds) is how we have created “unlimited” liquidity on the books of these banks and, in doing so, made them solvent.
    Ever wonder why it is that the dollar value has fallen compared to commodities, but our bond yields are near zero?

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