Focus On Short Sales

News flash: Short sales are an increasing segment of our market.

Nuff said? Are we done here?




Don't be silly, you aren't getting off that easy. Let's look at some of our current market numbers on short sales, and then I'll get into a couple of developments that will be affecting that segment - and by extension, our entire market - in the future.

As of right now, short sales account for 42.1% of our combined active and contingent listings. That's down slightly from 46.1% when I reported on this segment a few months ago. The mix has shifted just a bit, with 28.9% of our active listings (very close to the 29.3% in January), but the percentage of our contingent listings has dropped to 71.1% (from 80%). Part of this has to do with the increase of traditional listings on the market over the past few months, and some of those are going into a sale contingency status prior to going to pending.

Speaking of pending listings, 25.9% of our pending sales are short sales. This is up from 24.3% a few months ago, which is in line with what appears to be a shift towards short sales as a percentage of our sold units. If you read last week's 2010 First Quarter Update post, you'd know that short sales accounted for 14.9% of the sold units in the first three months of the year.

The success rate for short sales also continues to improve. 37.8% of the resolved short sale listings that have come on the market over the past 14 months have sold, compared to 72.4% for the market as a whole. Back in January, those numbers were 32.2% and 71.4%.

I expect these numbers to continue to improve. At some point, probably late this year or early next year, I expect to see short sales become the largest market segment in our sold units, outpacing REO sales. Why is that? Well, as I've said here a few different times, the banks are getting better about processing these transactions, our industry is getting better about it, and buyers are hanging in through the process more often because they don't have so many options in this tight inventory market. We're starting to hear more stories of banks encouraging home owners to pursue a short sale when they are having trouble making payments, and that's because they've figured out that the return they get letting a property go to foreclosure and selling it as an REO is significantly less than if they let it go as a short sale. Many of the large lenders have been ramping up and hiring thousands of people to work in their short sale departments.

We also have a new Federal government program that was implemented this month. The Home Affordable Foreclosure Alternatives (HAFA) program was started to supplement the Home Affordable Modification Program (HAMP) that started last year. HAMP is designed to keep homeowners in their homes by encouraging participating lenders to offer loan modifications to homeowners in distress. It got a lot of bad press in the industry early on, because the success rate was dismal. But in recent months, it appears that HAMP has helped at least a few homeowners. But there are many, many cases where a loan mod just isn't going to work, and a short sale is a much more viable option.

Most major lenders are participating in HAFA, but even with a participating lender, not all loans qualify. Notably, this program is only available for owner occupied homes, and Fannie Mae/Freddie Mac owned mortgages are not included. Fannie & Freddie have a program of their own that should roll out in the coming months, so we'll see how that fits. And even if a loan doesn't fit into any of these programs, there still could be a place for a short sale.

And as long as I'm on the subject, I'm going to indulge in a little bit of self-promotion. I don't do a lot of this on this blog, but once in a while it's warranted. Diane (you know, the smarter and better looking half of the team) recently earned the Certified Distressed Property Expert (CDPE) designation from the Distressed Property Institute. This is the premiere designation for agents who work with short sales. There is another designation out there, the Short Sales & Foreclosure Resource (SFR) that is available. This is the designation that our National Association of Realtors recognizes, and since I'm a NAR member, I'm want to be careful not to give you the wrong impression here. There are many very good Realtors with the SFR designation, including several in our market. But honestly, we compared it to the CDPE, and for the scope of the training, both initially and on an ongoing basis, the systems that they've developed to help us get short sales processed, the whole package - CDPE was far and away the more comprehensive choice. It's also more expensive, which is one reason that we have several SFR agents in town. But as of right now, we only have one CDPE in Lompoc. That's Diane. And if you've worked with her, you know that she's the most detail oriented person you could ever hope to encounter. And that's exactly what you want in a short sale listing agent.

OK, the commercial is over... In a nutshell, like I said at the open: Short sales are an increasing segment of our market. And they will be for quite a while. I still think that this is a 5 year cycle. We have a lot of purchases and refinances from the peak years out there, and until we get some solid price appreciation again, any of those people who need to sell are going to be upside down. Get used to it, short sales are here for a nice long stay.