Focus on REO Activity

As advertised earlier in the week it's time to update you on REO activity in our market. It's been an interesting few months to watch what's happening out there on the foreclosure front, and we are definitely seeing a change in some of our numbers.

REO listings currently account for 20% of our active inventory. That's pretty close to the same number that it's been when I've looked at that stat for the past couple of years. What's been changing is the percentage of pending and sold units. Currently 35.2% of our pending units are REO's, and 35.6% of the sales over the past three months are REO listings. That pending number seems to move a lot one way or the other - when I last covered REO's in June, we were as low as 23%. But there were points in 2009 when it was in the 70% range.

REO listings have dropped pretty dramatically in recent months. The drop from the first quarter to the second was about as large and abrupt a drop as I've seen in any meaningful statistic, from 60.4% ( a level that had been pretty consistent for several quarters) down to 34.8%. What happened?

Well, foreclosure activity dropped a bit a while back and has kind of bounced along a slightly lower level than last year, as you'll see from this chart. We have a couple of spikes here and there, but for the most part we haven't seen as many properties taken back by the banks in foreclosure as we saw last year. We've been bouncing around 60 or so REO properties that have gone back to the banks but haven't yet listed, and that has been a very stable number since I started tracking it early last year.

When I look at the percentages of new listings that were REO properties over the past couple of years, it definitely appears that we have a downward trend there as well. For most of last year, the percentage of new listings each month that were bank owned were in the 40-50% range. Over the past few months, that's dropped into the 20-30% range, with a small spike last month of 36.2%. That goes a long way to explaining why REO sales have dropped off - there just aren't as many of them to sell.

Is this a trend? It sure looks that way. We might see a little bit of an uptick in foreclosure activity in the coming months with Fannie Mae putting more pressure on loan servicers to act on borrowers in default. But that's probably not going to be enough to drive a big spike in activity. If the current trends hold as I expect, we're going to see a slowly diminishing presence of REO properties in our market, and short sales are going to become much more common.