Slow Sales = Stabilization?!
In this article, Courtney Edelhardt comments on an observation that slow sales of bank owned homes (presumably made by economists that were employed by the local real estate board) is stabilizing the local real estate market. The only way that slow sales of bank owned properties can stabilize the market is if the number of houses sold out weigh the number of homes being foreclosed on. In most areas of the country this is simply not the case. The bottom line is; that bank owned homes don’t disappear. They have to be dealt with sometime. Bank owned homes are certainly not appreciating value they are depreciating in value. While a sudden flood of bank owned homes will further depress the real estate market, they can be dealt with at once versus’ over an extended period of time.
Slow sales of bank-owned houses helps stabilize prices
BY COURTENAY EDELHART Californian staff writer
Bakersfield’s disproportionate number of lender-owned houses may be helping insulate the local real estate market from price fluctuation.
That was the assessment of two California Association of Realtors economists, who on Tuesday issued the group’s annual California housing market forecast.
Banks have been selling off their considerable inventory of foreclosed homes slowly in Kern County and other areas with high foreclosure rates, and that has helped to stabilize prices in regions hardest hit by the real estate crash, said deputy chief economist Robert Kleinhenz.
“You’re probably going to see more price stability in those areas than some of the other areas with more equity sales,” he said.
In Kern County, more than half of sales are distressed in some way, with the bulk leaning toward short sales, Kleinhenz said.
A short sale is an agreement between a seller and a lender to sell a property for less than the balance of the mortgage.
If a short sale can’t be worked out, often the house goes into foreclosure. At that point, the home is defined as a real estate owned, or REO, property.
In the Bakersfield area, 41 percent of existing single-family home sales in August were REOs, and 19.1 percent were short sales, according to the Crabtree Report, a monthly report on the local housing market produced by Affiliated Appraisers.
That’s an improvement over August of 2009, the year local home prices bottomed out. Back then, 60 percent of local home sales were REOs and 14 percent were short sales.
It’s a good sign that short sales are increasing and sales of lender-owned properties are falling, Kleinhenz said.
“When you see more short sales than REOs, that is indicative of a market that is further along in the healing process than some areas of the state,” he said.
Crabtree Report author Gary Crabtree cautioned that there is a large disparity between the number of short sales on the market compared with the number of short sales that have actually closed, however.
Even after a buyer and seller have reached an agreement, the bank has to sign off, and many lenders are either rejecting offers or taking a very long time to respond, he said.
“I’ve seen properties that have two to three buyers before they finally get an offer accepted by the bank,” Crabtree said.
In a Lender Satisfaction Survey the California Association of Realtors conducted over the summer, more than half of Central Valley Realtors characterized short sale transactions as “difficult” or “extremely difficult” to close.
“Despite assurances by lenders in recent months that they would improve their short sale processes, clearly, not enough is being done,” association treasurer Don Faught said in a statement.
In spite of that, the California Association of Realtors is forecasting that the state’s median home price next year will be $296,000, up less than 2 percent over this year and well below the 2010 median price of $303,100.
Sales should grow about 1 percent to 496,200 next year, the association predicted.
“We have a market that is moving forward very sluggishly, bouncing along the bottom with the understanding that there’s a whole closet full of wild cards that could change things,” said the association’s chief economist, Leslie Appleton-Young.
One of the biggest factors is the unemployment rate, which is holding back the entire state but is especially pronounced in the Central Valley, where so much job growth was tied to real estate and construction.
That situation isn’t likely to change any time soon, Appleton-Young said.
Kern County’s unemployment rate was 14.4 percent in August, compared with 11.9 percent statewide and 9.1 percent nationally.