WSJ - Short Sales Stepping Out

The move to short sales is an ongoing theme on this blog. No wonder - I have believed that short sales are the better solution for an upside down homeowner since 2006. Common sense seems to be prevailing all over, and we are now seeing the nationwide trends support what we have been advocating all along. Here is the latest WSJ article talking about how short sale closings are now outnumbering REO closings in Phoenix, Los Angeles and Miami - three of the hardest struck markets in the country.

Expect More Short Sales in 2012 (if all goes as planned)

The move to short sales. This is a theme that I keep returning to, as the financial juggernauts see further benefits of approving short sales, rather than going with the "traditional" REO model, when faced with someone who is unable (or unwilling) to keep their upside down house. More good news here, this time from Fannie and Freddie, via their presentations at the MBA servicing conference. Full articles here.

MSNBC - Increase in short sales give market a little breathing room

Another article talking about the move away from foreclosures and short sales. Couple of interesting points:

• Blaming the robosigning scandal for the slowing of foreclosures. This seems simplistic to me ... I think it's simpler than that - banks net more money in a short sale, and they are in business to increase the profits and minimize the losses.
• Honest assessment of foreclosure vs. short sale credit impact (immediately after talk of "torching" credit ratings) - Fair Isaac says they are the same. And yes - all future movement shows that lenders prefer to see a short sale on the  report, and give loans sooner.
• Value preservation, and better for the neighborhood. This is a great, and often overlooked point. Not only doing what is best for YOU, but also what is best for OTHERS.
• Ability to negotiate the settlement pre-foreclosure. Yes, this is true in states without anti-deficiency statutes, but it is also true in states where certain loans are not covered by anti-deficiency statutes (like most HELOC's in Arizona).
• Vandalism of vacant homes. This is HUGE - massive issue that is not addressed often enough. I cannot tell you how many homes I have seen with AC's and plumbing stolen - in a short sale, the property is typically occupied until the day of closing, at which point the new owner moves in.

All in all, a bit surfacey, but good reading, and obviously I agree with the overall conclusion. Click here to read the full article.

Taxing Consequences of Short Sales

While I am not nearly the expert on the subject of taxation after a short sale or foreclosure that my fellow blogger Robert Marsh is, I thought this article was a great introductory overview. And of course, here is the daddy of all articles on the topic, straight from the pages of the ever-exciting IRS.gov.

State of the market - 11/15/2011

Notice the continued increase of short sale transactions.


From Cromford Report (Mike Orr):

Each month about this time we look back at the previous month, analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next 30 days.

For the monthly period ending November 14, we are currently recording a sales $/SF of $82.36 averaged for all areas and types. This is 1.7% higher than the $80.99 we now measure for October 15. Our forecast range was $79.06 to $82.26 with a mid-point of $80.67. In a pattern similar to last month, this month the actual figure fell just above our forecast range by 10 cents. Pricing (as measured by $/SF for all areas and types) hit bottom in the second half of August and again in the first half of September but has been moving steadily upwards since then. We are now back at the level we last saw on July 3.

The current price level is 2.01% lower than last year on November 14.

On November 14 REO sales across Greater Phoenix (all types) averaged $62.95 per sq. ft. (up 0.8% from October 15). Pre-foreclosures and short sales averaged $72.25 (up 0.4%) while normal sales averaged $104.56 (up 0.6%). Normal sales gained market share, moving from 35.0% to 36.4% of sales, while REOs were the big losers, moving from 37.9% to 33.8%. Short sales and pre-foreclosures advanced once again this month, moving from 27.1% to 29.8% - another record high.

It is clear that the age of the REO is in decline while short sales and pre-foreclosures are becoming ever more important. As they become scarcer, REOs are getting more expensive. In addition the pricing for short sales and pre-foreclosures is no longer declining.

It is clear that the overall price movement (up 1.7%) is more than twice the movement of each individual component (REO up 0.8%, normal up 0.6%, short sales up 0.4%). This happens because of the change in the mix in favor of more expensive normal and short sales and away from the cheaper REOs.

On November 14 the pending listings for all areas & types showed an average list $/SF of $80.61, 3.0% above the reading for October 15 - so pending $/SF has moved upwards in a serious way for the first time in many months. This is a very positive signal, especially when all three sales components are moving upwards at the same time. Among pending listings we have a fast growing 30.5% normal, a sharply declining 28.3% REO and a steadily growing 41.2% in short sales and pre-foreclosures. The average pricing for pending listings on November 14 in each category were: $110.40 normal, $67.21 short sales & pre-foreclosures and $62.64 for REOs. Normal and REO are significantly higher but short sales and pre-foreclosures are lower than they were was last month. Together with the changing mix this tells us we are likely to see a further rise in sales price per sq. ft. over the next month.

Our new mid-point forecast for the average monthly sales $/SF on December 14 is $84.79, which is 2.95% above the November 14 reading, and we have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $83.09 to $86.49. A substantial change in the mix can still have a significant effect on the average price per sq. ft. and we are seeing considerable variation from day to day. However notice that even the lowest point in our forecast range is higher than today's reading.

It is now becoming very clear that our reading for September 15 - $78.54 per sq. ft. - will remain the low point over the near term. The lowest monthly average sales price is $150,503 and was also set on September 15. However the record low monthly median sales price is still standing at $107,000 and this was set nine months ago on February 24. Our current monthly median sales price is back up to $112,000, so median price changes have not followed the pattern of average prices or $/SF.

The shift to short sales.

Arizona Republic published an article about something I have been discussing for a long time on this blog - the shift to short sales. However, I disagree with one of the premises of the article - that the lenders changed their mind. The entire reason they started short sales, is that they net more money for the servicer and investor. Do not be deceived - a bank is a corporation, whose goal is to increase the profits and decrease the losses for their investors. EVERYTHING they do can be explained using one of those categories.

So, it isn't that they woke up one morning this year thinking that they want short sales, it's that their process is finally to the point where they can do them more efficiently. The other factor, is that the real estate industry finally has the skills and the knowledge to get short sales done. Back in 2006, when I first started doing short sales - I wanted to do them, and the banks wanted to do them. It's that neither of us had it figured out. Five years later - we still have much to figure out, but much progress has been made as well.

Let's keep working at it!

Read the full article here.