Below find April’s Market Condition Report provided by our friends at First Centennial Title. The news this month is that “percent selling” jumped up another five points in April over March. This is the third consecutive month that we’ve seen such an increase. Percent selling is now at 56% for Washoe County. [Recall “percent selling” is defined as closed transactions per month divided by closed per month plus failed per month (total market resolutions). This measure generates the market driven probability that a property will close as opposed to fail. Seller’s markets generate selling probabilities above 60%. Buyer’s markets typically perform below 45%.]
It’s nice to know that the odds of an open escrow making it through closing are finally greater than the transaction falling out of escrow.
Other points from the report:
- Inventory is holding steady
- Demand is increasing
- Median sold price for Washoe County is now $190,000
Reno Ignoramus
Guy, I fail to see how the fact that the “percent selling” is up is in any way good news for those who are hoping for price stabilization. It is good news for those hoping for further price depreciation I would suggest.
Let me digress for a moment to talk about 1295 Humboldt Street as just one example of what is now happening all over Reno and Sparks. This is a new house (built 2005) in the Old Southwest. This house sold on 12/14/06 for $415,000. Owner went into default on the loan. NOD, then NOS, then trustee’s deed last week.
Now the bank has it listed today on the MLS for $239,900. So the bank REO is listed at 58% of 12/06 selling price. What will bank take to unload it? Is it unreasonable to imagine that bank will accept $207,500, (or 50% off of last sales price)?
Well who knows what the bank will take, but it really does not matter to the larger point here. 80% of all sales today are just like this one, that is, they are either an REO or a short sale wherein the next sales price is going to be less, and often times a LOT less than the last sales price. (like 1295 Humboldt).
At least 80% of all sales today are driving the comps down. It is no doubt larger than 80% because surely some of the “non distressed” sellers are getting out for no gain and just happy to not be a foreclosure or a short sale.
I have been saying on this blog for over 3 years now that the only way a market deteriorates is through sales. The market cannot move down unless sales happen. If nothing sells, the market does not fall. So when 80% or more of sales only drive the market further down, just what exactly is the good news in knowing that the “percent selling” is up if one is hopeful for price stabilization? I can see where it is good news for those hoping for further price declines.
All this seems to mean is that now there is a greater chance that an escrow will close than that it will fail. In other words, there is now a greater chance that an escrow that will result in a sale that will futher drive the market down will close than that it will fail.
Raymond
“closed transactions per month divided by closed per month plus failed per month.”
Guy this sounds like something contained in an IRS Instruction to Form 1040. I have never heard of this “market driven probability” in all the years I have been buying and selling real estate. I’m certainly willing to acknowlege that maybe this is some esoteric “inside baseball” metric that title company folks invented.
But I think that if the “percent selling” number is the best news that our friends at First Centennial Title can up with, it says a lot about the state of the still falling market.
Ralston
For decades rising sales numbers meant rising house prices. This bubble has turned everything upside down, including the way we must think about data. When we are in a time when every sale represents a step down in price, we have to overcome the conditioned response that robust sales translates into rubust price gains.
Clearly the robust sales of the past many months have not translated into price gains, but just the opposite.
Somebody said the other day that the market will not stop falling until the foreclosures stop. Very true. And the foreclosures do not seem to in any way be slowing down.
Jay
Can someone tell me what is happening to all the foreclosed properties?
I have admittedly been shopping for houses the last 2 months and wanted to relay my experiences. We are seeing a blip of activity with lots of buyers bidding for very nice and sometimes just ok properties that have fallen a long way in price (Price range $175,000-$275,000). I know this because my fiance and I have been outbid 4 times. Now granted, we are bidding on only the super nice properties that seem to be selling for a steal, and are in reasonably desirable neighborhoods, but typically we’ve run into 2-4 other bidders and so it’s not surprising we can’t get one. I’ve also seen, as those properties go, the mediocre ones get picked off next. Probably due to frustration that I can identify with, they look to the next best thing. This is probably a blip in activity due to pent up demand, the tax credit, and general buying season. Given what is going on, I wouldn’t be surprised to see a small increase in median price soon before it starts to drop again later in the year.
But here is my question. I get that prices should still be coming down, mostly due to local economic factors as well as the never ending parade of foreclosures. But these foreclosures do not seem to be hitting the market. Where are they? What is holding them up from being listed? Are they hording them, trying to keep supply low? I know there was a moratorium, but that can’t completely explain why we see so few of them on the market. If you look in the areas I’ve been searching (South Meadows/ Damonte Ranch, Northwest Reno), the supply or REO’s is very low. A million short sales listed, but few REO’s. It’s just strange. Plus, MSI dropped to an absurd level recently. Makes me wonder if sometime a few months from now they will be flooding the market and we’ll see a giant drop in prices. Or, will they trickle out because the banks just can’t turn them around quickly, bringing a very slow and long route to the bottom. Either way, I’m worried.
Worried Guy
Only the Shadow knows…But seriously, they are doing a good job trying to keep that shadow inventory off the markets to keep prices up.
smarten
Jay, this is what I’m talking about.
A ton of foreclosures, but virtually NONE that are really nice nor where you and your fiance are looking to buy. In other words, what difference does it make to you that there are 1,000 NODs in Spanish/Winfield Springs, Somersett or wherever?
And here’s a tip for you to avoid being outbid on another property: your offers aren’t high enough. So either increase your offers; find another agent; or include a provision in your offer that if the seller receives a higher offer from some other bona fide buyer within the contingency period of your offer, you’ll BEAT that higher offer by $1K upon the seller providing written evidence of the higher offer’s bona fideness.
Good luck!
Ralston
That’s a good question Jay. I find it very difficult to know “where the foreclosures go” also. There is a link on the Recorder’s website that lists all the foreclosures, but it lists them by parcel number. This is interesting info, but relatively useless when trying to determine which of these foreclosures actually make it to the MLS as “bank owned”. I’m afraid we need to impose upon Guy to use his realtor’s access to the MLS database and let us know how many “bank owned” properties are listed.
Your comment about the South Meadows market seems to be right on. I just looked at the MLS for South Meadows and of the first 100 listings, 51 of them are short sales and 12 are REOs.
We have all heard about the shadow inventory of foreclosed properties that the banks are holding and have not brought to the market. But to what extent that inventory really exists seems impossible to know. The foreclosing lenders here in Reno are literally spread all over the country and I see no way of finding out how many houses they may be holding back now. Who could you even ask?
SkrapGuy
What difference does a 1000 NODs make to the market?
Because an ebbing tide lowers all boats.
Just because a few talented REO cherrypickers like our buddy Smarten may be able to pluck the very best deals, will not mitigate the sheer force of the pile of foreclosures yet to come.
Despite Smarten’s protestations, Jay, a 1000 NODs will, indeed, make their presence felt in the market over the next several months.
That does not mean that Smarten can’t find a good deal for himself amongst the rubble of a lot of REOs, and a tip of the cap to him for his abilities. But it also does not mean that the market decline is over.
Smarten may well have found himself a smokin’ deal in Incline, and good for him. But the more common story now is the one that RI describes above, of the house on Humboldt likely to sell for 50% off of 12/06 prices. What’s that going to do for the neighborhood comps?
Worried Guy
Yup….A once million dollar property in August of 2005 at the top of the housing bubble just went pending today in a short sale at $499,000….4277 Muirwood…That’s a nice 50% chop from the top..How low do we go?
BanteringBear
Jay posted:
“But these foreclosures do not seem to be hitting the market. Where are they?”
Sitting, vacant. Deteriorating, all in a vain attempt by banks to keep inventory low, and prop up prices. They can’t do it. Unless there is job creation and wage inflation, it’s impossible. Look at the record NOD’s. This has turned into an absolute rout. An unimaginable housing disaster of the worst kind. The economy is having it’s way now, too. The news publications are chock full of people losing houses because they lost their jobs- homes who’s mortgage payments were once affordable as long as their “owners” were working. The worst is yet to come.
Paperback
Interesting discussion. Iv’e been paying relatively close attention to the public records for the past 5-6 months. Iv’e noticed that many foreclosures seem to go into limbo, for months at a time. By this I mean that a NOD of default will be filed. Now often the NOS shows up pretty much right on time about 90 days later. But sometimes the NOS never shows up. But there is no recorded cancellation of default either. The NOD just “sits there” for months on end.
Or, sometimes the NOD is recorded, then the NOS, then….nothing. No trustee’s deed. No cancellation, no nothing. For months. Title to the property does not change hands.
It’s easy to count the number of NODs and NOSs and TDs every month, and also the number of cancellations.Certainly not all NODs turn into NOSs that turn into TDs. Cancellations are not uncommon. But its the ones that just……go into limbo that I can’t figure out. I have no scientific data, but my back of the envelope calculations are that there are hundreds of these foreclosures in limbo now. If you take the number of NODs filed, then subtract from that number all the ones that go to TD or are cancelled, there are a lot unaccounted for.
Is it that the banks are so overwhelmed that they are not moving the process forward? Anybody have any insight?
Horatio
I agree that the fact that escrows are closing at a higher percentage holds little good news for stabilizing prices when virtually all of those escrows contibute to comp destruction in the neighborhood.
It does not seem to me to be a remarkable proposition that in the midst of some REO rubble as Skrap puts it, that a few astute buyers like Smarten can find a good deal. What’s so hard to grasp about that? But just because some smart guys like Smarten can find a good deal, does not mean the market is stabilizing. As many have said, this market will not stabilize until the foreclosures stop. And as the comments from Jay and Ralston and Paperback highlight, it’s hard to know exactly what is going on with the foreclosures. I too have noticed that there do seem to be a number of foreclosures that just “go into limbo” as Paperback says. Do we have two varieties of shadow inventory? One variety being houses already foreclosed by banks but not put on the market and another variety being houses in the foreclosure process but where completion of the process is being deliberately held back by the banks?
smarten
Guys, what difference does it make to any individual buyer if he/she can “find a good deal” that works for him/her notwithstanding the fact that the marketplace as a whole is “unstable?” If this blog is about arm chair quarterbacking, then I guess from an academic perspective the question is “relevant.” But if that’s not you, so what?
Worried Guy posts that 4277 Muirwood went pending today at less than 50% of its bubble pricing. Again I say so what unless there aren’t a whole lot of Muirwoods out there and you have your heart set on becoming a Muirwood home owner. Why does this pending mean that HB2009, Jay, InclineJJ, myself and other “real” buyers out there shouldn’t take advantage of the Muirwood opportunities out there? Is the reason because it’s going to bring down everyone else’s values in the neighborhood?
I would suggest that what you buyers out there should be asking yourself is how much lower, IF ANY, is a house like Muirwood going to go down in value? It is entirely plausible to me that if Muirwood is a nice property, there could be dozens of Muirwood trustee’s sales and once they become REOs, they wouldn’t be resold for less.
So is it worth NOT submitting an offer for your Muirwood armed only with the hope that maybe something better will come along at a lower price [bringing down everyone else’s values in the neighborhood even further]? I don’t think so.
And insofar as Horatio’s statement “that [only] a few astute buyers like Smarten can find a good deal,” I disagree. Many on this blog have demonstrated they’re far more astute than Smarten and are capable of finding “good deals” [besides, aren’t many of you saying that today’s “good deal” is tomorrow’s poor deal?]. And if you’re not one of these persons, that’s what professionals like Guy are for. And if you don’t think your version of Guy is astute enough for you, I say find someone else.
But please don’t tell me that purchasing something nice out there which you’d like to buy which has dropped 50% or more in value from it’s bubble high is irresponsible simply because the rest of the marketplace which by-and-large consists of garbage or is delusionally priced is “unstable.”
downtownjunkie
The banks figure that letting them out slowly will yield a lesser loss than putting them all on- I agree. Can you imagine if all of these “shadow” properties came on at once!
Worried Guy
Just because Muirwood is down 50% does not mean that it can’t go down a whole lot more. Once financial bubbles rupture, they not only go down to where the bubble commenced, but in some instances go down even further into undervalued. If we are heading for undervalued, a property like Muirwood could go all the way to 75%+ down from peak pricing just to get to where the market will balance out.
where is it?
I could not find 4277 Muirwood, on the Washoe County Property Tax website. Is it on Muirwood circle?
GreenNV
4273 Muirwood looks to me like a red herring and a shill listing by an agent who is VERY familiar short sales. Bought in August 2005 for $1,000,000 with a $750,000 first, and there is a HELOC from November 2006 for $100,000. The listing price of $499,900 is nowhere in the realm of what the bank would accept (at this point). Maybe $650 in a couple months.
Tom
“Is it that the banks are so overwhelmed that they are not moving the process forward? Anybody have any insight?”
This illustrates that the banks consider the current FMV of these properties to be so far below their secured indebtedness balances that they simply aren’t worth adding to the lender’s REO list. Doing so would only create more negative “comps” through foreclosures, which are still `sales’ on the theory that someone could have bid that much or more, thus no willing buyers existed at the foreclosure price. Thus completing the process and expanding the REO inventory would just drive the value of bank collateral in the community down even further. More foreclosures just lowers the tide further, sinking the value of area real estate collateral securing other notes further. The banks don’t want to shoot themselves in the foot by creating a glutted market of foreclosed properties.
CHRIS
Jay, I know what you are going through. My husband and I where outbid a few times and we started looking last Summer and saw the prices decreasing. I found this blog and it help so much. I just kept bidding what I wanted to bid and what I felt comfortable with like so many here told me to do, and eventually I found the one for us. We would drive around and see alot of properties empty but not for sale or anything we would ask ourselves the same question you are asking…where and why. I think bottom line is if it is what you are going to call home, just continue to bid and when you get the one you like at the price you are comfortable paying for YOUR home you will not have to worry about the market and predictions. (advise from this blog) I wish you luck and continue to read this blog, the people who contribute are wise and I am so grateful.
chris
BanteringBear
“The banks don’t want to shoot themselves in the foot by creating a glutted market of foreclosed properties.”
I’m not a banker, but it seems to me that they may be cutting their own throats instead of shooting themselves in the foot; a fatal mistake. As far as I remember, they are not allowed to hold these non-performing assets on their books indefinitely. With a record number of foreclosures in the pipeline, they may end up drowning the market with these properties later in the year, losing more money than if they cut their losses early. Time will tell.
Sir Landalot
Has anyone taken into account that many of these NOD filings are by HOA’s? Does anyone know if any of these HOA’s actually gone through with the foreclosure process? Also I found this blog to be rather interesting.
Relating back to a discussion about a blog being a “self fulfilling prophecy”, this guy at least seems to be one of the few land brokers in the market who is honest with himself.
Sir Landalot
Here is the link
http://blog.naialliance.com/search/label/Land
Otto
Jay,
Right now banks are holding on to their REO’s, as they are not (technically) yet carrying the losses. Bondholders are.
However, this situation cannot continue much longer and soon the tsunami will get underway.
I don’t know the situation in Reno, but here in Northern California, only 30% of REO’s are listed with MLS.
My advise would be to wait six months. If you are looking to buy in IV, it will take a little longer.
Otto
Jay, forgot to mention.
With regards to timing, the only metric of significance is the period between NOS and trustee sale.
Right now that period is almost infintismal. This is decidedly in the banks’ favor and is creating a false demand. This confirms many of the above mentioned scenarios.
The banks will do everything possible to drag this out as long as possible because obviously they want to be on the supply end of supply/demand
equation. So keep a sharp eye on that time period.
3niner
A lot of people are in denial about the state of the housing market. Many of them are bankers (who should know better), and there are even many on this blog. One even said, “If nothing sells, the market does not fall.” This is simply delusional. When “nothing sells” it means that there is no market at all, and values are effectively zero.
I have personal experience with this, as I’ve owned some stocks in companies that have gone bankrupt. In one case, the company came out of bankruptcy, and I eventually got most of my money back, but it could not be sold for a few years, which made its value effectively zero during that time. Also, during that time, I believed that its real value was zero, and would have gladly accepted $20 for my holdings.
Fair Market Value is the price at which a transaction actually takes place. Saying that those engaging in the transactions are doing so at the wrong price, is silly.
It’s interesting to note that Japan went through a housing bubble, which peaked in the early ’90s. After time shifting the data, and adjusting for differences in inflation, the first 8 years of Japan’s bubble almost exactly matches ours.
Japan’s prices rose to a price peak pretty quickly, and quickly dropped back to a level comparable to the current level in the US. After that, there were many (about 10) years of slow decline, finally ending 10% lower than pre-bubble prices. This was Japan’s “denial” period.
Many sellers held on for as long as they could, waiting for prices to recover. The government took multiple actions to try to prop up the market, and succeeded only in stretching out the correction over many years.
What will happen in the US, remains to be seen, but I fear that we (as a nation) will prove to have learned nothing from their painful experience. Obviously there will be significant regional differences, and we can hope for a quicker correction in the Reno area.
I also see many lamenting the damage done by falling prices. Well, what about the damage done to those who were priced out of the market several years ago? They were pushed aside by people buying houses they couldn’t even remotely afford, and some were even buying multiple houses, which they were leaving vacant.
There are two good reasons to buy a house. One to use it yourself, when you can legitimately afford what it really costs. Two, when you plan to rent it out, and the income projections make sense. I have no sympathy at all for the speculators who overleveraged themselves, because they were going to make a killing in a rising market. They got hosed and they deserved it.
I do have sympathy for the young renters who got pushed aside by speculators, and are now being required to help bail out those who acted irresponsibly.
Richard Stabile Bergen County Real Estate
It seems like your market is trying to turn. It shows improvement. Most of the country is now showing improvement. I think we should see further improvement of the rates stay down. There is a new shortsale program which may help a bit to get the bottle neck of underwater homeowners to move along without killing their credit totally. It is going to takle some time yet, but if we can get some momentum and a little positive press.
billddrummer
To Riohard,
I think the talk of ‘improvement’ is premature. We’re entering a phase where many Option ARM loans are beginning to recast (when the deferred interest balance reaches the cap set at funding), requiring the homeowner to amortize the cap balance over a 25-27 year period.
If a homeowner is underwater at the pre-cap balance, and the loan balance rises to 115% of the amount borrowed, who will a) have the extra money in their budget to service the higher payment and b) continue to service a debt on a depreciating asset?
I believe there will be massive numbers of these homeowners who will simply walk away, rather than try to keep up with their new, higher mortgage payments.
More foreclosures and trustee’s sales coming soon to a neighborhhod near you!
DonC
Smarten — Well said. Great advice. However, given the incredible percentage of homes in Reno with negative equity — the best predictor of default — we should also be able to agree that there is no need for “panic buying”. IOW, even if we think we’re more or less at the bottom, it seems the odds of further down are higher than further up.
Incline may/probably is different.
++++++++++++++++++++++++++
3niner says “When “nothing sells” it means that there is no market at all, and values are effectively zero.”
Not exactly. If sellers want $100 for a widget and buyers are only willing to pay $90 it doesn’t mean the widget is worthless. It means there isn’t a market clearing price. At the very least it’s worth $90. This is BTW a common situation when housing prices are falling.
Assuming Japan is a blueprint for the US doesn’t seem likely given that Japan had negative population growth and the US has positive population growth. The excess million and a half homes the US has at the moment will eventually get snapped up as new households form.