Feb 09
18
There’s been several articles and commentaries lately to suggest that as bad as things are, banks are sitting on a huge stockpile of foreclosed properties and not selling them. Some people claim that as much as 70% of foreclosed property isn’t making it into the MLS, and a superficial glance at MLS vs foreclosure statistics seems to support the idea. In last week’s Friday Figures, I observed a gap too.
The logic in a nutshell is that banks might hold the property, deferring a big loss, and hoping that prices stablize or even go up. Until they sell the property, they don’t have to post the loss in their books. Of course, fear of prices collapsing when these theoretical thousands of properties hit the market may well be artificially keeping prices lower now.
There are a few problems with this approach. First, these properties — if they exist — are sitting vacant. Vacant properties are likely to deteriorate and drop in value substantially, particularly if a catastrophic event such as a fire or flood happens. Vacant properties are also a magnet for criminals, mischeivous kids, unscrupulous “landlord” scams, and homeless people. All of these things do negative things to the value of the property.
Second, there are still bills to pay, and sadly banks can sometimes be slow to pay them. Perhaps it’s just because the bank is such a big bureaucracy that it’s hard to find the right person to cut a check. The taxman and the homeowners association (HOA) doesn’t care who owns the house, only that the taxes and dues are paid. I have seen dozens of situations where the HOA has served foreclosure papers on the bank! I am also increasingly seeing properties that are owned by the county because taxes weren’t paid.
Third, and perhaps most important, we Realtors tend to forget that there are other ways to sell a house than to put it into the MLS. All the figures we have been using compare foreclosure data to MLS data, not to sales recorded by the county. How many foreclosed homes are sold by the bank at auctions such as REDC or Hudson and Marshall? How many of them are purchased by a party other than the bank “on the courthouse steps”? How many of them are sold to investors on a wholesale basis outside of the MLS system?
I am willing to believe that banks are sitting on hundreds of properties, but not thousands. Furthermore, I am willing to believe that this problem is regional but not national.
Let me tell a true story. There is a neighborhood that I keep track of. At this point, I know a lot of the property owners and residents. Last summer, a short sale went bad. The owners moved out before the Notice of Default — the first step of a foreclosure — was filed. Long before the bank actually owned the property, they had changed the locks, made several repairs, removed all the trash, and secured the swimming pool. The house went into the MLS within 72 hours of the bank actually owning the property, and a sale was closed roughly 45 days later. I have seen other houses in this same neighborhood sprout “For Sale” signs within a week of the bank taking them back.
And here’s a few tidbits to think about: housing starts, the NAHB Housing Market Index, mortgage credit levels, and architecture billings are all at record low levels. Could this be a panic bottom? If you are trying to figure out the new home buyer tax credit and how it compares to the previous one, Brand Candid has a handy chart.
