Short Sales 20% of Loudoun County Homes For Sale

Short-sales make up 20 percent of Loudoun County homes for sale. As in, for every five “For Sale” signs you see, one of them is a short-sale.

What does that mean in regards to the Loudoun County housing market?

First, let’s go back to August 2009… In a post entitled, “Short-Sales Wear the Crown in Loudoun County”, I ran the numbers and the percentage of short-sales to total homes for sale in Loudoun County was the same - 20%.

Based on a comparison of August 2009 and today, it means things are not getting worse. But they’re not getting better either.

It also means that buyers should know exactly what they’re getting themselves into when buying  a home in the area and have a real estate agent that is experienced in short-sales and can walk them through every step of the process.

When will see a decline in short-sales and a return to a “normal” market?

Once the general economy stabilizes and prices go up. Many people are underwater on their homes and can’t afford to come to the settlement table with a check for $20K, $50K or even $200K+. This means that their options are to 1) stay in the home until prices appreciate and/or they have the money to cover the loss, 2) let the property go into foreclosure or 3) try to negotiate a short-sale with the bank(s).

For more information about short-sales, check out the “Short-Sales and Distressed Properties” section of Loudoun Foreclosures or click here to contact me with your specific question.

Foreclosure, Bank-Owned, Short-Sale Properties Bulk of Loudoun Home Sales

Foreclosure, bank-owned and short-sale properties make up over half of total home sales in Loudoun County. This has been the case for some time now and will most likely continue through at least the end of 2009, if not longer.

A few things I’ve noticed…

1. The percentage of foreclosure/bank-owned properties to total sales has decreased. This probably has to do with the foreclosure moratoriums that were in place from the end of 2008 to March 31 of this year.
2. The percentage of short-sale properties to total sales has increased. This is due to banks becoming more willing to accept short-sales and because more sellers are trying to take the short-sale route rather than being foreclosed on.
3. The increase in short-sales has left more home buyers frustrated than every before. The short-sale process is long, requires a lot of patience and has less chance for success than a foreclosure/bank-owned and traditional sale.

We should start seeing more foreclosures come on the market now that the foreclosure moratoriums have been lifted and Fannie/Freddie and other banks are back at it foreclosing on delinquent borrowers. In one way, this is a good thing because it will give home buyers more straight-forward and less stressful inventory to choose from. In another way, more foreclosures on the market could be bad because it could put downward pressure on prices. It all depends on the rate at which banks release all their foreclosure properties on to the market.

Loudoun Foreclosure, Bank-Owned, Short-Sale Market Statistics - April 2009

Here’s a look at Loudoun County foreclosure/bank-owned and short-sale market statistics for April 2009:

Total Sales/Buyer Demand 

• The number of foreclosure/bank-owned and short-sale property sales in April 2009 were almost exactly the same as in March 2009 (325 vs 323)
• April 2009 sales were up 29 percent over April 2008

Inventory/Supply

• April 2009 had 273 new foreclosure/bank-owned and short-sale listings come on the market versus 289 in March 2009, a decrease of almost 6 percent (In comparison, April 2008 saw a 23 percent increase in listings from March 2008)
• April 2009 had 273 new listings come on the market versus 360 in April 2008, a decrease of  24 percent

Translation…

Buyer demand for foreclosure/bank-owned and short-sale properties has increased tremendously from last year. But the rate of new inventory/listings on the market is way down. This means more buyers competing over fewer properties which has lead to price stabilization and many multiple/competing offer situations.

Click here for more on Loudoun’s housing market conditions and how they affect you as a home owner, seller or buyer.

Loudoun Bank-Owned, Short-Sale Properties Make Up 25% of Inventory

Bank-owned and short-sale properties currently make up 25 percent of the active real estate inventory in Loudoun County (including new homes/new construction lots for sale).

Is this is a good or bad thing or neither?

Back in October of 2008, the percentage of bank-owned and short-sale properties as compared to the total inventory was 39%. But that percentage has since dropped and has been holding steady around 25 percent for some time now. 

That's a good thing in one way because we've seen the percentage drop and we're not seeing an increase (which would mean further downward price pressure). It's not a good thing in another way because we're not seeing that percentage continue to drop below 25 percent (which is key to a real recovery).

Another good thing is that the overall real estate inventory is Loudoun is dropping and is at its lowest level in years. I'm just curious as to if/when the next wave of foreclosures will come and how big it will be if it does. That depends on a lot of things including interest rates, the stimulus bill's effectiveness, loan modifications, the overall economy, etc.

So basically, we're better off than we were last year and we're doing ok for now. But cross your fingers.

Is there Another Wave of Foreclosures Coming to Loudoun in 2009?

An unprecedented wave of foreclosures has hit Loudoun County as well as the rest of the nation over the past few years. The primary source? "Subprime" loans and their high rate of default.

But there may be a second wave of foreclosures coming to Loudoun County thanks to "Alt-A" and "Option ARM" loans. Though previously thought of as less risky than "subprime" loans, many are saying that they will have the same, if not higher, rate of default as "subprime" loans. Most of these "Alt-A" and "Option ARM" loans have not yet "reset", but will begin doing so early next year.

Note: "Alt-A" and "Option ARM" loans don't fall into the category of "subprime" loans and have been virtually unaccounted for nor talked about until recently.

Consider this…

If you put a "heat" map of the US showing the number of "subprime" loans next to a "heat" map of the US showing the number of foreclosures and/or bank-owned properties, they look almost identical. The higher the number of "subprime" loans, the higher the foreclosure rate and number of bank-owned properties.

Assuming that "Alt-A" and "Option ARM" loans have the same, if not higher, rate of default, I can't imagine we'd get anything but the same result when comparing "heat" maps of these types of loans with future Loudoun foreclosure rates.

That being said, let's look at a "heat" map of "Alt-A" and "Option ARM" loans in Virginia (click to enlarge):

 

As you can see, there is a high concentration of "Alt-A" and "Option ARM" loans in the Northern Virginia area, including Loudoun County.

According to a recent 60 Minute special about "Alt-A" and "Option ARM" loans (check out the video), they are just now starting to reset with the worse to come in the next year to three years. If this hypothesis holds true and no real help becomes available for troubled borrowers, according to the map above, Loudoun will see another wave of foreclosures coming on the market over the next few years.

At this point, the data is limited though it's on economist's radar screens and there should be more coming out soon. As more becomes available, I'll keep you posted.

Where Are All the Foreclosures in Loudoun County?

If you're curious as to where all the foreclosures in Loudoun County are located or which areas of Loudoun are most affected by foreclosures, check out the map below (click on map to enlarge)…

     

As you can see by the where most of the red dots are, the areas of Sterling and SE Leesburg are where most of the foreclosures are located. Incidentally, that's where some of the biggest drops in home values in Loudoun County have occurred.

Another thing the map shows is the total number of foreclosures in Loudoun County for the first, second and third quarters of 2008. Notice the increase in foreclosures as the year has progressed though the rate of increase has decreased.

Source: Presentation by Jack Brown, Economist for Loudoun County - DAAR Economic and Housing Forecast Summit

U.S. Foreclosure Statistics Show Mixed Signals

The most recent U.S. foreclosure statistics just released by RealtyTrac and CNN show mixed signals. September 2008 saw a 12 percent decline in foreclosure filings over August 2008, which is good. But it also was a 21 percent increase over September 2007, which is not so good.

Though the increase over last year is an important statistic to consider, the decline over last month is even more important because it's more relevant to how the current market is doing and where it's headed. If we see a continued decline in foreclosure filings as 2008 comes to an end, this will bode well for market in 2009. If not, the 2009 U.S. real estate market may not get off to such a great start.

What's interesting is that there's a quote in the CNN article that says,

The bad news: The housing market will be flooded with bank-owned homes. "We are estimating that by the end of this year, between one quarter and one third of all homes for sale will be bank owned properties," he said.

That could push down prices even more, perpetuating a vicious cycle, but it might also start to attract bargain hunters who may absorb some of the massive housing inventory.

Well, Loudoun County bank-owned and short-sale properties have made up one quarter to almost half of all homes for sale for almost 2 years now. And the bargain hunters and investors started coming out in packs to buy up that inventory well over a year ago and they're continuing to do so.

This just goes to show that Loudoun County and the DC metro area are ahead of the rest of the U.S. (as we usually are). Our boom market started before most of the country. The peak of our boom market (Summer of 2005) was ahead of most of the country. And the bottom of our bad market usually comes before the rest of the country's does. If they're calling for that "bad news" to happen just prior to the bottom for the U.S. housing market….well, it's already been happening here in Loudoun.

Foreclosures, Short-Sales Make Up 39% of Loudoun Real Estate Inventory

Foreclosures and short-sale properties currently make up 39 percent of the total Loudoun County real estate inventory. As of this afternoon, 697 of the 1801 total homes for sale in Loudoun County are foreclosures or short-sales. We've been seeing foreclosures and short-sales represent an average of 25 percent of the total inventory in Loudoun throughout most of 2008 so this is quite a jump. 

After looking at the numbers and types of properties for sale, it seems that there are less "traditional" listings (non-foreclosures/short-sales) on the market than usual, but banks and distressed home owners are still trying to unload their properties at the same rate. This may be what is driving the percentage number up.

Overall, Loudoun real estate inventory is down so this statistic isn't necessarily cause to be alarmed. But, if you're a buyer, know that banks and agents listing these properties are well aware of the lower inventory levels which bodes well for them, not you, when it comes to negotiating an offer.

Demand For Distressed Properties Outpaces Supply For First Time

The foreclosure/bank-owned and short-sale portion of the Loudoun County real estate market has been steadily improving over the last 6 months. But last month brought some of the best news we've had in a long time - demand outpaced supply!

For the first time since the market turned, there have been more distressed properties sell than new ones come on the market in a one month period. August had 326 distressed properties sell versus 306 new ones come on the market.

Here's a graph showing new listings (supply) versus solds (buyer demand) for 2008 (click to enlarge):

 

Notice that in January, the number of new listings was more than double the amount of solds. Since then, the number of solds has been steadily increasing. The number of solds in August was more than double those in January.

As for inventory, there was a spike in new distressed property listings last spring, but it's back down to the 300 per month level.

This is very good news for not only the foreclosure/bank-owned and short-sale property market, but the Loudoun County real estate market in general. The key ingredients to a stabilization of the market is lower inventory and higher demand, which is what we're seeing across the board in Loudoun County.

Related Articles

No "Summer Slump" For Loudoun County Real Estate In 2008

Loudoun County Real Estate Market Statistics - 1st Half 2008 vs 2007

Loudoun Real Estate Inventory Levels Well Below National Average

Foreclosures/REOs Comprise Nearly 20 Percent of US Inventory

RealtyTrac just released a report which shows that nearly 1 in 5 homes on the market in the US are foreclosures/bank-owned. The report also states that US foreclosure filings are up 8 percent from June to July and up 55 percent from a year ago.

The worst hit states are California, Nevada, Florida and Ohio. California happens to have 3 of the 4 metropolitan areas with the highest rate of foreclosure-related filings.

Here's a heat map showing the level of foreclosure activity across the US (click on image to enlarge):

Photo credit: RealtyTrac

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