Focus On REO Activity

It's been a few months since I covered REO's in on of my "Focus On" posts. I had a post back in March (click here) where pointed out some of the differences in home values between REO & non-REO properties. Most of what I said then still holds true. We're still seeing REO's selling for less than similar properties, for the most part. But there are some interesting things happening with these properties lately.

As has been true for quite a while, REO's are comprising a much smaller percentage of active listings than they are sales. REO's accounted for 42% of new listings that came on the market in the second quarter, pretty close to what we saw in the months preceding. About 57% of sold and 51% of pending units in the second quarter were REO's. Those numbers are down somewhat from a few months ago, but they are still clearly a big market driver.

We've been seeing an increase overall of late in sold units selling for at or above list price (not accounting for seller paid closing costs). This trend has been heavily driven by REO activity. Those of us working this market know from experience that REO's are, for the most part, coming on the market aggressively priced and are getting multiple offers the vast majority of the time. What I hadn't really done until this morning was to actually pull the numbers. Even I'm a little surprised at this: In the first quarter of this year, 43% of our overall sales and 55% of our REO sales sold for at or above list price. In the second quarter, those percentages jumped up a little to 57% overall and 61% for REO's. One of these days, if I get bored, I might go back and track that through 2008 as well, but I'm pretty sure that we'll see a trend here.

Let's look at what we have coming up. I said back in March that I didn't anticipate a "tidal wave" of inventory. I think I projected an increase in inventory to around 130-150 in the summer. I think that's too high now, but I do think that a bit of an increase is coming based on the foreclosure activity we've been seeing.

I've been keeping track of unlisted REO inventory for a few months - properties that have gone back to the bank but have yet to hit the market. We had around 50 of those units back in March, and up until the past few weeks, that number fluctuated around that level. Recently, we've seen a bit of an increase in properties going back to the bank, and as a result, we have about 68 such homes. When you see the foreclosure numbers, you'll understand:

January - 19
February - 15
March - 21
April - 17
May - 32
June - 35

Part of this probably had to do with a hold that Fannie Mae and Freddie Mac put on foreclosures of owner occupied homes earlier this year. That hold expired in April. But it looks like we're seeing a bit of a decrease in the number of unresolved trustee sales, probably because they have started foreclosing some more properties. When I first looked at that number at the end of March, I saw 86 unresolved sale notices. It had climbed as high as 118 in the middle of June, but has dropped off a little to 107 today.

Despite the increase in foreclosures, we're still seeing the vast majority of Trustee's Sales get postponed, and we're starting to see what looks like a little bit of an increase in cancellations of these sales. Diane & I have been tracking these sales and going to the courthouse for some sales periodically over the past few months. One of these days, I'll write about that process - it's pretty crazy, and not for the faint of heart.

A new California requirement went into effect a couple of weeks ago for lenders to either put in place a program to modify loans for some homeowners, or to delay a filing of a Notice of Trustee's Sale for 90 days. This will likely have a mild dampening effect on REO listings coming over the next few months. Right now, I think we're status quo as far as inventory levels are concerned for the immediate future, with maybe a slight trend upward. I wouldn't be surprised to see our inventory level move back to around 100-110 units in the next handful of weeks. Not by any stretch of the imagination is that a big increase, especially in light of our current demand.