Bank-Owned Homes Drive Increased Low-End Action

I thought it might be interesting to re-visit the sales histogram chart that I first published a few times last year.

To generate the chart below, I took all the sales data for single-family homes sold in King, Snohomish, and Pierce Counties from the beginning of 2010 through the end of March. Since my data download puts late-reported sales into the month that the sale actually took place rather than in the month they were reported, there is a slight difference in the number of sales I’m counting vs. what the NWMLS reports each month.

By default the chart shows just King County sales in March. Use the controls below to view different months, or to see what the mix looks like for Snohomish or Pierce County. I’ve also added color-coding and controls to separate out “non-distressed” sales from the sales of bank-owned homes and short sales.

Now that I’ve been downloading the sales data for over a year, you can flip back and forth between the latest January, February, and March and the same month a year ago. It’s interesting to see that although the median price has only fallen $25,000 between March 2010 and March 2011, the concentration of sales in the lower prices seems to have shifted noticably to the cheaper brackets.

It’s also interesting that although the median has fallen $25,000, the bin with the most sales (the approximate mode) has been relatively steady, holding in the $250k to <$300k range for ten of the last fifteen months. In Snohomish County the trend is even more pronounced, with the median having given up $21,500 between January 2010 and March 2011, but the mode holding steady in the $200k to <$250k bin for all but three of those months.

Overall it seems that movement on the low end is picking up pretty strongly in 2011. With banks seemingly processing more foreclosures and getting them onto the market more quickly, it would appear that some serious market clearing has finally begun. Of course, just as we’re really getting the market rolling on a true path to correction, the Washington State legislature has decided to step in again and slow things down with another bill to slow the foreclosure process. But that’s a topic for another post.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

24 comments:

  1. 1
    Kary L. Krismer says:

    Careful Tim! Those charts demonstrate the impact that bank owned sales have had on the median (at least for those who understand what the median is). You’ll come under criticism for doing things that point out the obvious. ;-)

  2. 2
    Ross says:

    It seems to me that this data also represents an argument against the “we’re within 10% of the bottom” statement as well as the usefulness of the affordability graph from last week. Bank owned homes tend to sell for 20-30% less than equivalent homes through the normal sale process. If bank owned homes are a significant fraction of low-end sales, then they are partly responsible for the numbers apparently indicating affordability. If we’re looking for the end of the correction being close to when the market returns to normal, we must be attempting to describe a return to sustainable long-term pricing. This huge overhang of bank-owned properties must be excluded from that model and once you do that, today’s buyers are valuing homes well under today’s non-bank sellers.

    If prices overall move somewhat lower, and then prices remain flat while the backlog of bank owned homes is eventually cleared, normal home prices will have to drop still further to meet buyers in the market. So you may not see it on a median price graph, but comps will be continuing to drop while that median price stays flat. And that’s when I’ll be ready to enter the market.

    Watch out with signals derived from that median number. Median is somewhat more useful than the average, but it’s still a very narrow window to look at something as multivariate as home sale prices.

  3. 3

    RE: Ross @ 2 -Quick Question(s) from a RE Layman, but Still a Bubblehead

    How can regular sales’ prices pick up without distressed sales? [i.e., I’m assuming qualified buyers are like dinosaurs today and getting them past mortgage approvals is like pulling teeth, even with lower prices]

    Same scenario, with probably more wealth down and higher incomes, for the higher end properties with less distressed in chart, that have collapsed in price too.

    What happens to all the “Houses of Cards” assuming mortgage rates keep Spiking Up?

    Article in part:

    “…Despite the fact that home prices in most markets remain on a downward trend, the costs of owning a home are going up – mortgagew rates alone have spiked by 20% since early November 2011. …”

    http://www.behindthemortgage.com/2011/02/fha-mortgage-insurance-costs-going-up-on-april-18th-2011.html

  4. 4
    Ross says:

    RE: softwarengineer @ 3 – My take as another RE Layman:

    I suspect that regular sales prices will only pick up when the distressed sales backlog is back to historical levels and the zombie banks are closed (i.e. healthy banks have actual deposit reserves that can be used to back new mortgages).

    Banks are currently willing to write mortgages as long as there’s enough of a down payment to absorb expected future property value losses. That they’re willing to underwrite a mortgage with 20% down says that they feel that those homes won’t lose much more than 15%.

    If mortgage rates go up, house prices will fall (I know Tim has data that apparently contradicts this in recent history). Bankers are starting to pay close attention to income and affordability, as are new buyers. This will cause even more homeowners to be under water and even more distressed housing to enter the market, but it’s not clear how the government can avoid raising interest rates.

    When the cost of mortgages goes up, demand will fall even farther. We’ve got several years of correction in real estate and overall economic expectations in front of us while people work and save (and spend less on everything) to restore even minimal household reserves.

    All IMHO (and not only humble, but also inexpert. While I do have econ experience, I’m not a real estate expert and while I assert that macroeconomic fundamentals must eventually be restored, it’s impossible to predict how long it will take or the path by which we get there).

  5. 5
    Kary L. Krismer says:

    By softwarengineer @ 3:

    How can regular sales’ prices pick up without distressed sales? [i.e., I’m assuming qualified buyers are like dinosaurs today and getting them past mortgage approvals is like pulling teeth, even with lower prices]

    Financing isn’t as tough as what you would be lead to believe from reading newspaper articles.

  6. 6
    The Tim says:

    I guess this stuff is a bit too far off in data-geek land for most of the usual commenters? I thought it was a pretty interesting look at the data, and am somewhat surprised there are so few comments… Maybe everyone just decided to take the sunny day off?

  7. 7
    ARDELL says:

    RE: Kary L. Krismer @ 5

    It depends on the price and loan amount. 20% down loans over $800,000 can be pretty difficult even with high incomes and high credit scores. The reserve position requirement for liquid reserves after close can be as high as $80,000 (10% of loan amount).

    I haven’t done any condos since very early 2010, but even qualified buyers are having trouble with many condo purchases. Lenders are very wary of financing condos in all price ranges regardless of buyer qualifications. They are keenly aware of how an unforeseen special assessment or other common area malady can trash the value of their collateral overnight.

    PMI Companies should just run, because insuring the top 5% to 16.5% of a home’s value has got to be a losing business model in this economic outlook for the foreseeable future.

  8. 8
    No Name Guy says:

    RE: The Tim @ 6

    I thought it was fascinating. Especially what a large fraction of distressed is at the low end.

    Not really surprised that it’s a large fraction at the low end – it makes sense. First time buyers a few years ago, typically younger, lower income, further down the food chain at work buy their first place – probably low down, ARM (after all, how many 30 Y/O first time buyers have 20% down and are disciplined enough to wait until they can take on a 30 fixed?). When the spaghetti hits the fan, they’re the last hired and first fired, so all the low end is clobbered especially hard.

  9. 9
    Kary L. Krismer says:

    RE: No Name Guy @ 8 – Also the properties are often not at all well marketed, which further reduces the price received. And some are in a state of mid-remodel, with the work that was done being sub-par.

  10. 10
    m-s says:

    By everyone’s guess(?), these distressed sales came from houses that shoulda been 20-30% higher up the food chain, all other things equal. Is that true, or does putting them in the higher price slots produce an unreasonable, unsightly hump in the distribution? If the latter, maybe banks are just s-cking at selling houses.
    Also, I think that the $25k fall in the median y-o-y is NO small spuds.

  11. 11
    LocalYokel says:

    Is there a way to find out if non-distressed sellers sold their homes at a loss or evened out?
    I am wondering if a non-distressed sale could still be a
    distressful situation where the seller sold at a loss or sold losing their equity, but not officially declared a short-sale or REO.

  12. 12
    Daniel says:

    By The Tim @ 6:

    I guess this stuff is a bit too far off in data-geek land for most of the usual commenters?

    The data looks exactly the way I would have suspected it to look. Maybe the new information content is simply almost zero?

  13. 13
    Kary L. Krismer says:

    By m-s @ 10:

    Also, I think that the $25k fall in the median y-o-y is NO small spuds.

    Again, that is due to the foreclosures. I just ran the numbers on non-distressed and the median for King County SFR is actually up YOY by about 5k.

    Numbers from NWMLS sources but not compiled by or guaranteed by the NWMLS.

  14. 14
    Kary L. Krismer says:

    Here’s a blog piece I did on the topic Tim mentions at the end of his–the act that will slow down some foreclosures:

    http://www.trulia.com/blog/kary_l_krismer/2011/04/washington_s_new_foreclosure_fairness_act

  15. 15
    Chris says:

    RE: The Tim @ 6

    I thought you did a yeoman job on this tableau piece, Tim. Short of a 3D plot, it would be cool if tableau could animate the charts to show monthly progression (e.g. 15 frames from Jan ’10 to March ’11). Maybe some possible inferences would help draw comments:

    – the blue and green bar segments are probably “n” bars to the left of where they’d be at retail/non-dstressed prices.
    – high end homes have fewer distressed sales in part because someone qualifying based on 30% of their income has much more discression in the other 70% of their income to absorb economic bumps; this is paradoxical because their home values have declined more in absolute dollar value so they have more to gain by a foreclosure or short sale
    – Short sales appear to be fetching more than REOs, banks are hurting themselves by making the process so difficult
    – given the lower volume of distressed sales above $500k (and better performance in that Case Shiller bracket), expect to see new home builders start to step in and provide supply in that space

  16. 16
    David Losh says:

    Well the numbers look like they should, would, or could. It does demonstrate that Ross is making excellent statements that your charts do look like we will experience more than a 10% drop in pricing.

    Also from a macro economic out look every short sale, or banked owned property represents a debt forgiveness. We can take that out of the economy, but at the same time you are showing a very small per cent of house holds.

    Every one who owns a home is having the same drop in equity, wealth, and pricing. At the same time those people who continue to pay on mortgages are representing a net loss to the family wealth, and spending.

    These charts are showing how grave the problem is. It is a bubble that is deflating.

  17. 17

    tim-

    hard part is that the trend over time is nigh-impossible to see.

    Next time, perhaps consider a 100% area chart and drop the distress status, with a second axis as total volume. If you want to send me the data offline, I can mock it up and you can decide if it’s an interesting slice.

  18. 18
    Scotsman says:

    ” it would appear that some serious market clearing has finally begun.”

    Well there’s a pile of assumptions gathered into a convenient conclusion. How do you square this with the data I posted a week or so back that bad loans are turning into foreclosures much faster than foreclosures are being sold, a double backing up in the system?

    All the current data trends suggest is that cheaper homes are selling- perhaps because now there are some to chose from, or because some of them may actually cash flow as rentals with enough down. Or maybe because folks can get 3% down loans- which puts them in a position to walk without a big loss if everything goes to h#ll.

    Or perhaps it’s all just more confirmation of the age-old adage that “there’s a fool born every minute.” Or that the video generation has an attention span of 45 seconds and the patience to match.

  19. 19
    Scotsman says:

    RE: Scotsman @ 18

    Everybody knows REO and short sales aren’t legitimate indications of market value- they can’t “drive” anything. ;-) Ask a realtor.

  20. 20
    One Eyed Man says:

    RE: Scotsman @ 19

    I agree. But except for the humor related to un-Real-tors, it would be better to more accurately depict the nature of REO’s and short sales as legitimate indicators of market value for properties having on average inferior physical condition and increased transaction risks when compared to the general market place (at least based upon anecdotal evidence, as I’ve never seen a quantitative study). There are legitimate reasons to discount REO’s and short sales that are not present to the same degree in the non-distressed property market place. They don’t call them distressed properties for nothing.

    Caveat: That’s not to say that REO’s and short sales aren’t often times true “bargains” or that they aren’t often better priced to reflect market value. It only means that some portion of the difference in price between distressed properties and the non-distressed properties is due to REO’s and short sales more often having attributes that to some degree make them inferior products deserving of a discount when compared to otherwise comparable products.

  21. 21
    Kary L. Krismer says:

    By Scotsman @ 19:

    RE: Scotsman @ 18 -Everybody knows REO and short sales aren’t legitimate indications of market value- they can’t “drive” anything. ;-) Ask a realtor.

    No one has said that they can’t drive prices. What I’ve said is that you need a certain threshold within a certain area.

    I’ve done two CMA in the past week. In the first none of the comps that I selected as possible best comps were distressed sales. Out of 19 possible comps, only 2 were short sales and none were bank owned. Out of 16 actives, only 2 were distressed. Rather obviously distressed sales are not driving anything in that market. In the other CMA the situation was quite different, with distressed sales being roughly a third of the comps, and over half of the actives.

  22. 22
    JG Bell says:

    Morning Tim. While this chart may appear as “new(s)” to those of you still left in Western Washington (are the lights still “on”?), tis also proof that Seattle is a day (or year) or two too late, and a dollar short(er?).

    What we see happening in Greater (Well, it once was) Phoenix is that there appears to be a steady pipeline of REO-foreclosures. We have a huge number of foreigners (some even from Canada) buying with all cash down at the lowest price levels for subdivision homes. While this may be some snowbirding, much is a return of “investors”, aka speculators, with cash.

    But, over the last year we also saw something very interesting. When CS, ASU, AZMLS and others were saying that prices might have bottomed out, all cash investors came back into the Phoenix RE market. However, when prices started to drop once again, they backed out of the market. When they saw that the supply of REO listings and asking prices remained constant, they came back into the market.

    What appears to be the case is that REO homes were and are being fed into the market at approximately the same levels as there are REO sales. Someone’s God only knows how many homes remain to be fed/sold in this pipeline, but what appears to be true, is that the banksters have decided not to list too many, to not drive prices lower; and not to list too few, so they are driving the prices up too fast and the investors away. While it may be a somewhat different definition for most of U.S., tis “cash flow”.

    An underwater/bad RE loan is being written off the books by someone with a new FMae/FMac/FHA/VA loan, OR by someone putting up cash, they got from somewhere else. And, the proceeds/cash are put back onto their books.

    As “They” are oft heard to say: “That T**d is now in someone else’s pocket.”
    (Or, something like that.)

  23. 23
    Kary L. Krismer says:

    By JG Bell @ 22:

    . While this may be some snowbirding, much is a return of “investors”, aka speculators, with cash.

    It was just Ray! ;-)

  24. 24

    […] been way too long (over a year) since I posted the histogram of monthly sales. Let’s take another […]

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