Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'short sales'

Should the MLS Ban Short Sales?

By The Tim on September 2nd, 2009 at 6:00 AM · 96 Comments

In the comment thread on yesterday’s post there was some discussion about the ever-growing gap between pending sales and closed sales. Here’s a simple look at how they stack up through July (since August stats aren’t out just yet):

January - July 2009 Total King Co. SFH Sales

The massive difference between pending and closed sales brings up the question: Is there really a backlog of over 5,000 homes waiting to close?

Most likely no, there is no such tsunami of closings about to crash on the shores of the Puget Sound. This growing discrepancy is probably due to a couple of factors.

First, the redefinition of what is counted as a “pending sale” last year to include homes that have merely reached the inspection point naturally means that a larger number of these pendings will not close simply due to failed inspections.

However, the larger factor is probably short sales. Hundreds if not thousands of these pendings in limbo are probably due to a buyer making an offer on a short sale, the seller “accepting” the offer (at which point the “sale” is counted as pending) and sending it to the bank, and the bank simply never replying.

It is also worth mentioning that each of these 5,000+ seemingly dead pending sales represents two parties (the buyer and the seller) that have wasted their time submitting and reviewing offers. The situation is definitely not pretty. One of my coworkers recently purchased a short sale, and he went for months without hearing anything from the seller’s agent regarding the status of their offer. It took him threatening over the phone to drive his truck through the (vacant) house to finally spur some action by the seller’s agent and the bank (not a recommended course of action)!

One suggestion that was floated in yesterday’s conversation was that the NWMLS ban short sales in their system all together unless the seller has gotten a pre-approval from the bank on the list price. This would certainly save a lot of people a lot of headaches, and would probably overall help the market to be more efficient.

Have you had an experience with a short sale that completely died? What, if anything, do you think should be done about this growing problem?

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Two Recent KUOW Pieces of Note

By The Tim on June 22nd, 2009 at 1:02 PM · 32 Comments

Thanks to everyone who responded to the call earlier this month from KUOW for help on their story about the soft market.

Here’s the resulting piece: It’s a Tenants Market for Downtown Seattle Office Space

There may be signs of recovery in the region’s housing market, but not so for the region’s office market. A recent survey from Price Waterhouse Coopers says commercial property values in Seattle are expected to decline up to 15 percent this year, that’s more than the national average. The survey predicts the market will remain in recession for two more years.
…
[Large downtown Seattle landlord UNICO's Chief Financial Officer John] Lamb says it’s going to be a while before the market begins to stabilize. He says vacancy rates will continue to rise, and don’t be surprised if some commercial office buildings in Seattle end up facing foreclosure.

Also, last Friday’s “weekday” discussed the residential market, with : Short Sales, Foreclosures and First Time Home Buyers

Friday’s program had the same guests that were on the program in early May that we mentioned here: real estate agent / appraiser Richard Hagar, Urban League housing director Linda Taylor, as well as new guest certified financial counselor Andrea Misiano.

They discuss foreclosure / refinancing rescue scams, including some good advice for first-time buyers—take the emotion out of the home-buying process. I haven’t been able to listen to the entire program, but apparently there was also some questionable advice mixed in this time, including the claim that (according to a Seattle Bubble reader) “it’s better to get the low interest rate than the “one-time” lower house price.” In any case it’s overall worth a listen when you can make the time.

Kudos to KUOW for continuing to give the local real estate market some decent, thoughtful coverage that goes beyond the usual “ra-ra” pro-industry pieces that have been all-too-common in most news sources.

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NWMLS: Mark Any Accepted Offer on a Short Sale as “Pending”

By The Tim on May 31st, 2009 at 9:16 PM · 57 Comments

Kevin Lisota of Findwell sent me a heads up about a rule clarification sent out today by the NWMLS to all their members:

Short Sales: Status Change Required after Mutual Acceptance

Rule 120 (b) requires the listing office to timely report the mutual acceptance of a purchase and sale agreement for a short sale as Pending (e.g. Pending, Pending Inspection, Pending Back-Up). A Short Sale property shall not remain in the Active status if the buyer and seller have reached mutual acceptance and are waiting for the lender’s consent to the transaction. The only Short Sale properties that should remain in the Active status are those properties where the buyer and seller have not reached mutual acceptance.

In other words, properties that have any offer approved by the seller and awaiting bank approval must be marked as “pending,” regardless of the known fact that many banks are taking 2-3 months just to respond to such offers, many of which are then rejected by the bank.

This rule is not new, but according to Kevin, there is “zero consistency for this practice right now.” One would assume that many agents are already doing this, causing some of the growing discrepancy between “pending” and closed sales. Of course, if there are a non-trivial number of agents out there not doing this already that begin to do so now, this will definitely artificially inflate the pending sales data even further.

Kevin points out two problems with this rule (and the NWMLS’ newly-found fondness for enforcing it):

  1. Your pending numbers are going to be even more messed up. Often the distressed home seller will sign anything they receive, no matter how crazy, and then submit it to the bank. (Many banks won’t even look at it without a signed contract.) If typical wait times are a 2-3 months for a response, you’ll see all of those properties marked as pending, yet they are not pending until the bank approves the transaction. To give you an example, we have a short sale buyer that is in contract with the seller. They signed an agreement for a sales price close to $300k off the list price and more than $300k being owed to the mortgagor. I believe that this price has zero chance of success, yet the seller signed it just to move things along at the bank.
  2. This policy is not in the best interests of short sellers. Since there is limited success getting buyer’s offers approved, particularly lowball offers, it is in the seller’s best interests to continue marketing the property to try to attract better buyer offers while they wait for bank approval. The moment you change it to pending, it disappears from websites and no one will seriously look at the property any more.

At this point, I’ll continue to report “pending” sales in our monthly summaries, but will be converting our regularly scheduled graphs to closed sales, since that is a statistic that has had a consistent definition since 2000 (as far back as my data goes).

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One in Three Q1 Pending Sales Failed to Close in 30 Days

By The Tim on May 7th, 2009 at 5:00 AM · 94 Comments

Now that 2009 Q1 + 1 month is in the past, let’s have an updated look at the relationship between pending and closed sales. For previous posts on this subject, hit the ‘pending’ tag archive.

Below is the updated chart including 2009 Q1. It shows quarterly King County SFH pending sales volume from the NWMLS, with closed sales offset by one month (since closings should theoretically take ~30 days). In other words, the pending sales data for Q1 includes January, February, and March, while the closed data is for February, March, and April. The blue and red lines represent pending and closed sales (left axis), while the green bars represent the percent difference between closed sales and pending sales (right axis).

Pending & Closed Sales - King Co. SFH

The 2000-2007 average difference between pending and closed sales for the first quarter was just 8.8%. In 2008, the difference per quarter was 7.5%, 15.9%, 20.7%, and 27.3%. In the first quarter 2009, the gap between the two widened for the fourth quarter in a row, to yet another new record of 35.9%.

Here’s a look at the month-to-month data for all sales (SFH and condos) in King, Snohomish, and Pierce back through the beginning of 2008:

Pending & Closed Sales - King / Snohomish / Pierce

There are two theories as to why this gap is becoming so large, both centered on short sales.

The first theory is that the “pending sales” statistic in the NWMLS end-of-month reports includes all sales that were in “pending” status as of the last day of the month, rather than counting all sales that changed from “active” to “pending” in the given month. This would cause short sales, which typically take longer than 30 days to close, to be counted as a “pending sale” for multiple months, thereby artificially inflating the pending sales data.

The second theory is that the number of short sales as a percentage of total sales is rapidly increasing every month, and therefore more and more closings each month are being delayed beyond the “normal” 30-day period.

In the chart below, I have attempted to visualize the second theory, based on the following:

  1. Fact: the average failure rate 2000-2007 was 5%
  2. Assumption: the excess apparent failed sales above 5% represent distressed sales
  3. Assumption: distressed sales will fail at quadruple the normal rate (20%)
  4. Assumption: distressed sales average 90 days to close

Here’s how King County’s SFH quarterly closed sales would break down over the last four quarters (with each quarter offset +1 month), given the above fact and assumptions:

Hypothetical King Co. SFH Closed Sales Breakdown

Interestingly, the 4-quarter total percentage of distressed sales calculated using the above assumptions comes out to 23%, which is fairly close to the number of foreclosure + short sale transactions reported by Zillow over the last year in the Seattle area. Their national spreadsheet says that 13.9% of the transactions in the Seattle-Tacoma-Bellevue area in the last 12 months were foreclosures, and 12.3% were short sales, for a total distressed sale percentage of 26.2%.

We still have not heard a definitive answer on the way that the NWMLS counts their end-of-month “pending sales” data, so we can’t rule out theory #1 entirely. But either way, the story here appears to be that a large number of short sales in the Seattle area are skewing the formerly-reliable pending sales statistic, making it increasingly difficult to get a true handle on what home-buying demand really looks like.

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Foreclosure / Short Sale Mess in Tacoma

By The Tim on January 19th, 2009 at 7:45 AM · 72 Comments

We’ve seen plenty of these kinds of articles and news reports about the foreclosure situation down in southern California, but I don’t think many people ever would have expected to see such a piece written about the Seattle area: Foreclosures mean work for “trash-out” specialists

Contractors who specialize in cleaning and maintaining the nation’s growing inventory of bank-owned properties are finding gold in the rising foreclosure rate.

They’re busy handling so-called “trash-out” projects to prepare these homes to sell for institutions often based far from the homes they’ve repossessed in foreclosure.

“It’s the busiest I’ve seen it in 25 years,” says Tim Rogers, owner of Tim Rogers Construction in Tacoma, which handles trash-out gigs in Pierce County and South King County. “There are so many jobs to deal with, I can hardly keep up.”

And on a related note, I thought this letter to the editor of the Tacoma News-Tribune was interesting:

Re: “Few in mood to buy a home” (TNT, 1-7).

My husband and I are fortunate enough to have the ability to buy a second home. What we have found is that all of the homes we looked into are short sales. This is a nightmare for buyers. You have to wait up to 60 days before you find out whether your offer is accepted.

We refuse to make a full-price offer on most of the homes we have seen. Most of these short sales are in major disrepair and would never sell at those prices in a normal market. The houses we have seen have been purposely destroyed by the owners taking out their anger at this whole mess.
…
We are very disenchanted with the whole house-buying market. The weather did not keep us from looking, but there is nothing new on the market, except short sales. This is why few are in the mood to buy a home, in my opinion.

Have those of you that are currently actively searching for a home noticed the same thing?

(Jane Hodges, Seattle Times, 01.17.2009)
(Sherri Rice, Tacoma News-Tribune, 01.18.2009)

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In the trenches update

By S-Crow on September 30th, 2008 at 11:13 PM · 13 Comments

First, something to lighten the spirits of everyone:

Tales of homeownership:

If you are on a septic system, don’t drive over a waste line with a 10 ton truck loaded with gravel.  I did and just learned that PVC waste lines will indeed pancake.  The result is rather disgusting.  – SCrow

No one is lending money:  that is false.

Although the pace of transactions is meaningfully lower than what we have seen, the idea that no-one is lending money is not the case.   Our office is closing routine sales, closing short sales and refinance transactions.  The difference is that closings are taking longer, authentic underwriting is taking place and FHA is appearing to be very much the type of financing people are using.   And, yes, borrowers are asking for and receiving concessions.

Some of the loan officers (still in business) we have worked with during the last 4-5 yrs. have jumped from one firm to the other that is FHA approved.  FHA is the name of the game right now.

In the area in which I live (Snohomish and vicinity), we have had several sales take place over the last month  or so, and, among those, a couple properties closer to where I live sold for $750K and up.   So, there are some people who are snooping around and finding very good values for the current market we are in.  My guess is that if you asked, “why in the world would they buy in this market”, they would reply, “talk to me in 15 -20 yrs.”  And that is one of the primary real estate mindset shifts I’m discovering:  few are those who are not looking at a long-term horizon in their purchase.

There are some absurd decisions being made

The unique view from the escrow seat allows for a lot of discussion in the S-Crow household, some of it funny and some of it just remarking about how foolish some people have been.

For example, a seller purchased a home within the last year to flip it.   The seller made improvements and put it back on the market.  The seller then obtained an offer and the transaction moved towards closing.   Once escrow disclosed proceeds, the seller evidently did not like the net proceeds after expenses:  not enough (code for potential paper loss).  Buyer is ready to close and the seller refused to sign closing documents.  You’d think that a seller would know within a small range what the proceeds would be before putting the home on the market and wasting everyone’s time and money.  Result: highly probable legal action moved the seller to sign.

There are a number of people in our society (save the politics for another blog) that just refuse to take personal responsibility for stupid personal financial decisions.  This is an issue that Mrs. S-Crow and I argued a lot over in months past.  I’m starting to come to the conclusion that her analysis has more merit than my “it’s not all the borrower’s” fault mentality circulating in my head.  Some borrowers did put too much trust in the people guiding them along the way.  But, in the end, their signature is on the Note and Deed of Trust.

We are at the bottom, locally:  I don’t think so.

I have no data to back this up, but my anecdotal evidence of closings is the best I can come up with.   Based upon what I see in the refinancing realm over the last three quarters of this year,  I see some existing homeowners delaying the inevitable.   Refinancing costs thousands of dollars and there is a pervasive thought (I don’t know where some people get their information…either they are terribly not paying attention or someone is giving them false hope, which in many cases is more dangerous and damaging than being honest about where the chips are falling) that the market will turnaround within the next year or two.  Possible?  Anything is I suppose.  Likely?  Nope.

Real scenario:  It is not realistic that a borrower can purchase a home late in 2006 for $500K+,  now owes in the realm of $540K on the property and think that in two years time (2009-2010) they can have an equity gain to pay routine closing costs.   And this is in a development that was birthed in 2005 that has already experienced a foreclosure and another distress sale (as so disclosed by the very borrowers that were signing their closing documents!).   It is a classic example of a potential, not to distant, distress sale staring at me in the face.

Are the closed sales-price-to-list-price ratios accurate?:  a question for local agents.

For example, if you have a listed price at the time of the sale of $100K and the sale closed at a price of $95K, you would have a 95% list-to-sales-price ratio.  This is used a lot by agents to gauge how well priced a home was and another metric to show that homes in an area are selling on average, for example, about 97-99% of the list price.   Does the NWMLS use the ORIGINAL list price in this metric or the last posted list price?

What’s up with all the Steve Tytler negativity?

Steve was was of the severely few locals in the business of lending that was reporting publicly that we were going to experience lower housing prices.   Straight shooting integrity is what we need in this industry.

Questions about transactional things?:   Just drop me an e-mail as many recently have and in the past.  I may not have all the answers, but I’ll do what I can.

- S Crow

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