Today’s Wall Street Journal has a piece on the rise in the number of investors picking up properties at foreclosure auctions and then reselling them. According to one estimate, in November about 21% of homes sold in trustee sales in California went to investors rather than to a foreclosing lender, up from 6% a year earlier.
See the WSJ article here: House Flipping Makes a Comeback
The ongoing thread on yesterday’s blog post has many readers asking where are all the NODs that have been filed over the past year? The article suggests that with 7.5 million U.S. households behind on their mortgage payments or in the midst of foreclosure the banks are simply overwhelmed and are trying to figure out how to negotiating with distressed borrowers and sell the growing supply of foreclosed homes. According to the piece, “Barclays Capital estimates that banks and mortgage investors have 639,000 foreclosed homes for sale across the U.S., largely concentrated in Florida, California, Arizona and Nevada. That’s equivalent to more than 10% of expected U.S. home sales this year.”
skeptical
One noteworthy aspect to foreclosure flipping is that it artificially gooses the overall home sales numbers.
Overall sales volume numbers are skewed upwards if a foreclosure is purchased and then sold for a profit as an “organic” sale 6 months later.
Is that a partial explanation for the very strong sales numbers in Reno over the last several months?
Guy Johnson
skeptical,
What numbers are referring to as being skewed upwards? Washoe County recordings? MLS data?
I’m not sure I follow where this “profit” would be reflected. Please clarify.
skeptical
Guy,
The numbers that I’m referring to that are skewed are “total sales/month”. Foreclosure flipping not only increases that number, it gives the appearance of more organic/fewer distressed sales.
The article you cite gives a number of 21% of trustee sales going to investors. If 50% of these investors are flipping the properties (conservative guess), sales in a given period is increased over 10%.
Mark Hanson recently noted in one of his commentaries regarding foreclosure flipping in CA that it “is a new phenomena that is also responsible for goosing reported sales this year…. Over the past year, investors have been very active in the foreclosure market with at least half intent upon fixing up and reselling the house within six months. These foreclosure resales are counted twice before an end user finally occupies the property.”
He goes on to explain that foreclosure flip sales account for over 10% of Sept sales in CA.
Applying that ratio to the recent RSAR numbers make them slightly less impressive and accounts for a large part of the increase in overall home sales since June.
Hope that this more clearly explains what I’m trying to say.
Richard Stabile Bergen County Real Estate
I see in our market in Bergen County oppurtunities for flip sales. If your willing to hang in there to pick up the distressed property and fix it up quickly. I see a lot of sales in that area. This was not at all practical due to declining prices for a while. Now there seems to be a little bit more price stability. There is also opportunity in the uncompleted new construction market. We have some homes not completed in foreclosure. This also is starting to work.
Tyler Wood
Thanks for posting this Guy. I actually started looking into these Trustee Sales over the past couple weeks and all the point they talk about in this article are valid. There seems to be a lot of opportunity for investors in this arena right now.
Downtownjunkie
“I see in our market in Bergen County oppurtunities for flip sales”
here we go again…
Guy Johnson
skeptical,
Thank you for the explanation regarding your first comment. However, when you say, “Applying that ratio to the recent RSAR numbers make them slightly less impressive and accounts for a large part of the increase in overall home sales since June.” …that’s not a correct extension of the foreclosure sales numbers. The reason is that the RSAR reports MLS data. MLS sales data record sales of only *listed* properties. Sales that take place on the courthouse steps are never counted in the MLS/RSAR numbers. Furthermore, when an investor “flips” a property acquired on the courthouse steps, the only way that subsequent sale is picked up in the MLS is if the investor listed the property for sale on the MLS. If not listed, then the subsequent sale would also not be picked up in the MLS numbers.
skeptical
Guy,
I stand corrected. Thank you for the info.
I do maintain, however, that the “double sale” of a foreclosure flip does skew sales stats, if not MLS/RSAR numbers.
OBTW, I don’t necessarily think that this activity is a bad thing. It gets the property off the banks books, into the hands of an (presumably) experienced investor, and ultimately to a qualified, stable buyer. We probably need more of this activity, not less. The trouble is that it is not a risk-free transaction, and some will get burned.
Guy Johnson
skeptical,
Agreed, on both points. 1) the Washoe County recordings would reflect both sales involved in a flip.
2) I also feel that this activity is a good thing…for all the reasons you mention.
billddrummer
To Guy,
I agree with you as well, for all the above reasons.
There is one thing I’d like clarification about. When you post sales statistics and then compute months’ supply of inventory, are the sales taken from the county recorder and then applied to MLS/RSAR listing figures?
I don’t mind the methodology as long as it has been consistent, but it seems to me that this will consistently understate the amount of available inventory, because the MLS doesn’t include new construction, TD sales unless marketed by a lender, FSBOs or any of the properties in various stages of pre-foreclosure.
I welcome any clarification or expansion of this discussion.
Guy Johnson
billddrummer,
My calculations are always based off of our MLS data. Always have been.