REO Flood, Now an REO drought?

There’s no shortage of prognosticators telling us of a coming flood of REO homes on the market.  OK, a lot of those soothsayers have something to sell you – be it the likes of Lamco Network, REO Vendor Manager, REO Network, numerous REO consultancies and coaches like REO Renegades, SuperStarREO etc. – their message is all the same – join our network, pay the fee, you need to be in all the right places when the flood gates open and the REOs start pouring on the market.

And hey – it’s legit!  I believe it, that explains the copious quantity of dollars flowing from my bank account to some of the above-mentioned outfits.  A lot of folks will point to data provided by our friends at RealtyTrac (who, coincidentally, also have a product to sell you), which, if you believe them, say there are…jeez, I forget how many, 4-5, 7+?… million homes across the United States at some point in the foreclosure process right now.  Of course, they are quick to point out, not all of these properties will go REO – some will be sold via short sale, some will get loan modifications, etc. – but that no matter how you slice it, there’s a lot of REO coming down the pike, although it’s likely to come more as a steady stream rather than an outright flood as many of my colleagues in the REO Brokerage business seem to be hoping for.


Well, that was then.  Now, klaxon bells are sounding and the blogosphere is in an uproar – they’re pulling the plug on foreclosures!  It started with Ally/GMAC but quickly spread to JPMorgan Chase, Bank of America – and now others.  The New York Times has a couple good articles on the subject (Foreclosure Furor Rises, The Gathering Storm over Foreclosures), that old salty dog Bloomberg weighs in on it (Hydra of Foreclosure Probes).  A lot of states’ Attorneys General area getting in on the act, including our own Jerry Brown and the attorney general of Connecticut has ordered a halt to all foreclosures – while at the moment the foreclosures have ground to a halt only in judicial foreclosure states, it seems likely that it own’t be long before it spreads to non-judicial states like California.  And of course there’s no shortage of grandstanding politicians at the national level, either.  This could get messy (not that it isn’t already – foreclosure is a somewhat messy business).

Perhaps not surprisingly, all of this hubbub has actually reached its way down from on high and touched our business here at the Silicon REO Group.  Two days ago, I received via RES.NET a task to list one of the properties I had in pre-marketing.  Awesome!  I fired off the tasks to the appropriate people on the team – flyer design, MLS entry, ordering the sign up, filing the paperwork with my brokerage, posting on Craigslist, etc. Hours after seeing the RES.NET task, the property was listed.

And then, yesterday – kaboom!  An email from the asset manager arrived saying that the property needs to be pulled of the market, any marketing be discontinued, and that no offers/contracts would be negotiated on it at this point.  Of course, I’m expected to maintain the property and continue doing MSRs (monthly status reports) BPOs and whatnot while we wait to see if the property is to be re-listed, or…or what?  Give the property back to the former owner because there was an error in the foreclosure process?

Somehow…I don’t see that happening.  All this hue and cry about the MERS system and flawed titles, by the way – much todo about nothing if you ask me.  But people have advertising to sell to eyeballs looking to see the banks get theirs and hapless underwater homedebtors hoping and searching for how they can get relief for overextending themselves in the easy money mania of a few years back.  And I get that, and it’s fine, do what you gotta do, it’s a free country, right?

Although I’m no sage, and I’m the farthest thing from a legal or financing expert – I predict that all this will be just water under the bridge in a few months’ time.  For all the social tumult and government inquiries and TARP, HAMP, HAFA, HARP and a whole alphabet soup of other catchy acronyms – the foreclosure train rolls on, and I think it’s going to keep on rolling until the root causes of the crisis are behind us (negative equity, unsustainably high home prices, unemployment).  From the sound of it, we’re still some years away from working through it all.  So I’m prepared for lots of foreclosure drama in the headlines for some time to come – and you should be too.

Steady as she Goes Down, September 2010 Real Estate Market Notes

After what seemed like an agonizingly long time, IndyMac/OneWest Bank assigned me an REO listing a couple of weeks ago.  The property is presently undergoing a personal property eviction, so we won’t get started on the BPO for a little while yet.  Even though I’ve sold lots of houses in the area, the market is ever-changing and it’s important to keep up on the latest fluctuations.  The bank’s automated system wanted me to go out and do a weekly occupancy check and report back – silly, maybe, on a house known to be vacant but I have a policy of checking every property weekly regardless.  I thought I would make best use of the trip by also going and checking out the competition, and seeing some of the recently sold comps.

I should mention, this is a rural area – pretty much farm country, or horse country maybe.  Given that its a rural setting, it’s always a challenge to find any two properties that are actually “comparable” – since there is such a wide variance in age, style and quality of construction, lot size and utility, access, distance to urban amenities, and of course good old-fashioned economic obsolescence courtesy of amenities like high tension power lines and noise pollution from nearby highways and bi-ways.  But if you look at enough “comparables” you can get a pretty good idea of a subject property’s value by using back-of-the-hand matched-pair analysis and my personal favorite, the principal of substitution.

I checked out over a dozen properties yesterday, and I also e-mailed a few agents to ask about what kind of activity they had had on their listings – offers, threats of offers, inquiries, etc.  One of the agents wrote back and told me something pretty interesting – he’d been on the market a couple of weeks, and they had four offers.  The seller had rejected three of these offers and was negotiating the fourth.  All four offers had come in under asking price.

It’s kind of unusual to have a multiple offer situation and have all offers come in under asking price, to say the least.  It’s especially interesting when, of all the dozen or so houses I had gone to see, this particular house was the one I thought was by far the nicest/best deal – but everyone is coming in low?  Granted, it was also the most expensive on the list – but was the newest, had the least deferred maintenance, highest functional utility, etc. – and it was not all that much more expensive than the competition.

And the agent for this property added a bit of commentary which was totally unsolicited:  “Definitely like a big slowdown.”

Well that’s a nice juicy anecdote!  It does jibe with my own experience, which is that I have listings that are languishing, attracting no offers (even though fairly priced against the comps) – or attracting low-ball offers.  So what’s going on here, has the market fallen off a cliff since the expiration of the federal home-buyer tax credits?

Nationally, I do believe that is the case.  NAR (the National Association of Realtors, natch) reported in July that nationwide, home resales were down 27%.  I don’t believe they have posted their August numbers yet.  But how are we doing locally?  I have some freshly crunched numbers for you, served up hot and fresh:

Santa Clara County


Santa Cruz County


Monterey County


As you can see, in each of the counties that we service, the median home price is up year-over-year (especially so in Santa Clara and Monterey counties) – and the amount of “active” inventory (not under contract/pending sale) is down considerably in each county.  But, crucially – so is the number of sales.  We can clearly see that year-over-year, the sales volume in all three counties has dropped considerably.  One can take heart by looking at month-over-month sales numbers and see that at least in Santa Cruz and Monterey counties there were more closings in August than in July, but I have long felt that month-by-month numbers are much less useful than year-over-year.

It’s clear that the median price is rising in all counties that we service – but I would caution that this number does not mean much, as it continues to be the mix of homes that are selling which is driving the price “rise” – neighborhood-by-neighborhood, I don’t see much in the way of upward price pressure – quite the opposite, in fact.  While our “Days on Market” is generally pretty healthy across all three counties, I see the declining sales volume as strong evidence which, when coupled with anecdotes from myself and other agents, indicate that we may be setting ourselves up for a grim autumn and winter selling season.

What do you think?  Comments are welcome!