President-Elect Obama said he wants to put a 90-day moratorium on foreclosures once he takes office, but Countrywide/BoA, Chase and Citi aren't waiting until January 20 to start "freezing" foreclosures. The effect of this is already being felt in Loudoun County as less new foreclosure/bank-owned properties are coming on the market.
For example…I just did a search for active bank-owned and short-sale town home listings in Ashburn Village and found that over 90 percent of them were short-sales. The ratio has recently been about 60/40 (foreclosures to short-sales)
One effect of this is that buyers will be further frustrated with the purchase of a home. Short-sales take 3, 4 sometimes 6 months for a response and only about 20 percent get approved so they work for only a select few buyers that have that kind of flexibility and patience. With the rising number of short-sales and diminishing number of foreclosure listings and traditional resales on the market, buyers are left with less "real" inventory to choose from than they have in years.
(Short-sales are not "real" listings in my book because the seller doesn't even know if the short-sale will be approved by the bank while listing the property)
What will happen when the "freeze" ends? We'll see more foreclosure properties hitting the market once again. As much as this may sound like a bad thing, it's actually a good thing. We have to get through the bank-owned property inventory one way or another before we can see the market rebound. Plus, it will give buyers more "real" inventory to choose from.
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.
With all the hype and talk about foreclosure/bank-owned and short-sale properties, especially in Loudoun County, you’re probably wondering what that segment of the real estate market is up to. Let’s look at the statistics to find out…
- The number of foreclosure/bank-owned and short-sale properties that came on the market in July 2008 was 318. This is an 8 percent increase from June 2008 (318 versus 291).
- The number of foreclosure/bank-owned and short-sale properties that came on the market in July 2008 was 45 percent more than in July 2007 (218 versus 175). This statistic in itself does not look very good, but let’s continue looking at buyer demand and then look at the overall picture.
- New foreclosure/bank-owned and short-sale listings comprised 47 percent of the total new listings in Loudoun County in July 2008
- The number of foreclosure/bank-owned and short-sale properties that went under contract (aka sold) in July 2008 was 299. This is a 12 percent increase from June 2008 (299 versus 263). This is a key statistic because July is usually slower than June when it comes to buyer activity and shows that buyer demand for these types of properties is up.
- The number of foreclosure/bank-owned and short-sale properties that sold in July 2008 was 440 percent higher than in July 2007 (299 versus 68). This shows a huge year over year improvement that has been the general trend in Loudoun County so far this year.
- Foreclosure/bank-owned and short-sale properties comprised 54 percent of the total number of homes sold in Loudoun County in July 2008
Although inventory is up, buyer demand for distressed properties has risen tremendously helping to absorb these new properties/listings and stabilize the market. For example:
- In July 2007, the ratio of new listings to buyer demand was 5:2 (for every 5 new listings, 2 went under contract/sold).
- In July 2008, the ratio was almost 1:1.
Although we haven’t seen the flow of foreclosure/bank-owned and short-sale properties slow down, buyers and investors are out in full force buying them up. The fact that buyers and investors are out is great news for not only the distressed property market in Loudoun, but the overall Loudoun County real estate market.
In a nutshell, despite increased inventory, the distressed property segment of the market is showing improvement. It’ll be even better once we see new inventory start to plateau and eventually go down while buyer demand stays strong. And if Loudoun County gets involved in buying up foreclosure/bank-owned properties like Fairfax County is going to do, that’ll be even better.
Sales of foreclosure/bank-owned and short-sale properties in Loudoun County are up…way up! So what’s "way up"? How about 378 percent!
As of a few weeks ago, distressed properties made up almost half of the total sales in Loudoun County. Investors and traditional buyers are out in full force taking advantage of the deals to be had.
Here are the numbers:
- The number of foreclosure/REO and short-sale properties that sold during the 2nd Qtr of ‘07 - 227
- The number of foreclosure/REO and short-sale properties that sold during the 2nd Qtr of ‘08 - 859
- That’s an increase of 378 percent
With the Loudoun County real estate market looking up and interest rates having jumped recently, this may be just the time to start picking up an investment property or two. And if you’re a traditional home buyer that doesn’t mind putting in some money and sweat equity into a great deal, you may want to check out some of those great deals.
The percentage of total properties for sale in Loudoun County that are foreclosures/bank-owned or short-sales is holding steady around 25 percent. We’ve been seeing the percentage stay around 25 for most of this year.
Though we’d all like to see that percentage go down, it’s definitely good news that it’s not increasing. The fact that it’s not increasing is another sign that the worse is behind us.
Have you ever thought a property was a "regular resale" only to find out it was a "short-sale" at the last minute? If you have, you were probably disappointed and possibly upset. You may have even thought that the seller and listing agent/broker were lying to you and the general public by not disclosing it was a short-sale.
Before you go off calling the seller and listing agent/broker "interesting names", let’s look at a few things first that will help you understand why this happens so you know how to best protect yourself…
- Listing agents/brokers are not allowed to disclose "confidential financial information" about the seller without the seller’s written permission. Announcing to the public (you) that the it’s a short-sale situation is considered to be disclosing "confidential financial information" about the seller. If the seller does not allow the listing agent/broker to do so, they can’t. (I wouldn’t accept a short-sale listing if the seller wouldn’t let me disclose, but that’s me)
- Though most sellers know that it’s much worse to not disclose that it’s a short-sale than to disclose that fact up front, some may keep silent anyway. Sellers aren’t obligated to disclose that they’re in a short-sale situation. In fact, the burden is on the buyer to do their homework and find out.
- What about the ones that are right on the cusp? These are the sellers right on the brink of owing money once all the costs of selling their property are paid. If they accept an offer at their current asking price, they’ll be fine. But if they accept an offer lower than their asking price, they won’t have the money to make up the difference in what they owe. This means that the "regular resale" just turned into a "short-sale".
Is there a way to protect yourself as a buyer? The answer is yes.
There is language you can add to your offer that, if the seller accepts it, will force their hand and tell you if they are facing a short-sale situation. An experienced and knowledgeable Buyer’s Agent will know what that language is and where in the offer to put it.
The rate at which new foreclosure/bank-owned and short-sale listings are entering the market in Loudoun County remains steady. Here are the numbers:
- January 2008 saw 310 new foreclosure/bank-owned and short-sale listings come on the market. That’s 10 new ones per day.
- February 2008 had 289 come on the market. That’s 10 per day.
- March 2008 had 301 come on the market. That’s 9.8 per day.
- So far this month (thru 4/22), there have been 253 new foreclosure/bank-owned and short-sale listings come on the market. That’s a slight increase to 11.5 per day, but not too far off the 10 per day average.
The trend so far this year seems to be about 10 or so new foreclosure/bank-owned and short-sale listings on the market each day. I’ll keep you posted on how April ends up and whether this trends continues or changes.
"Short-sale" seems to be a buzz word these days with many buyers going after short-sales because they think they can get a great deal. Yes, there is a chance you can get a great deal on a short-sale. But you must have a lot of patience and not be in a hurry to move.
Let me repeat…
You must have a lot of patience and not be in a hurry to move if you’re trying to buy a short-sale.
Why must you have patience and a lot of time? Because the bank makes the final decision on whether your offer is approved and that process takes an average of 60 to 90 days. In some cases, it may take up to 6 months.
Why does it take so long? Because the first thing banks did when profits plummeted is cut staff. When you mix a huge increase in case files and a staffing cut of 50 percent or more, you get overworked and underpaid employees that care more about finding a new job than your offer.
I have to move into something in the next 30 to 45 days…should I consider short-sales? I wouldn’t say that you should not go after a short-sale, but have "Plan B" in place so that you’re not homeless come time to move. You may get extremely lucky and get a response in less than 60 to 90 days, but don’t bank on it (pun intended).
Should I call the listing agent regularly to check up on the situation? If you consider "being patient" calling the listing agent every week asking whether they’ve heard a response, think again. By calling the listing agent over and over, all you’re doing is annoying the agent. The listing agent is trying to sell the house as quickly and as much as you’re trying to buy it. Trust me, the listing agent will call you the second they get a response from the bank.
Why doesn’t the listing agent call the bank and hurry things along? (insert "bank" for "listing agent" in the above paragraph)
So remember…when it comes to short-sales, you must be patient and not be in a hurry to move. You have to understand that the process takes much longer than a traditional resale. And know that the listing agent is doing everything they can to make the process go as quickly as possible.