Shadow Inventory

The KCM Blog recently posted a blog entitled: Shedding a Little Light on Shadow Inventory. The article states that distressed properties are expected to increase. The article also talks about the affect on neighboring properties.

Last week, we posted a blog titled: The Impact of Distressed Properties on Neighboring Values. In the article, we said there would be more distressed properties coming to market in the next six months and that these properties would put added downward pressure on prices of other homes in the area. Some questioned our assumption that foreclosures were about to increase and others questioned our assertion that they would have a negative impact on values. We want to qualify both of our statements today.

Distressed properties are about to increase

We have been in the ‘eye of the storm’ regarding the shadow inventory of foreclosure properties for the last several months. Foreclosures have been delayed by court systems mandating that the banks have their paperwork in order. Just last week, Fannie Mae addressed this issue in a report:

“Our foreclosure rates remain high. However, foreclosure levels were lower than what they otherwise would have been in the first quarter of 2011 due to the delays caused by servicer foreclosure process deficiencies and the resulting foreclosure pause.”

In their First Quarter 2011 Financial Results Supplement, Freddie Mac, also addressed this issue last week:

“We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO.”

More foreclosures will be coming to the market throughout 2011.

Distressed properties impact prices of surrounding properties

Clear Capital discussed this point in their May 2011 Market Report. In the report they used two graphs to emphasize the connection. In the first graph, they charted the national saturation rate of foreclosures (REOs) from 2008 until the present.

In the second graph they charted national home prices during the same time period.

We can see that as the saturation rate of foreclosures increase, prices decrease.

Bottom Line

More foreclosures will be coming to market and they will have an impact on values. How will your neighborhood be affected? Sit down with a local real estate expert to find out.

To read the entire article click here.

Short Sale or Foreclosure?

We get asked this question quite often. In a rapidly changing market, it is difficult to give absolute answers. Much depends on your family’s personal situation. However, if you realize that you can no longer make the payments, you may have to decide between doing a short sale or letting the home go to foreclosure. Here are three things you may wish to consider:

1.) Impact on Your Future Ability to Get a Mortgage

There are many different lending institutions, each with their own requirements when it comes to your ability to obtain a mortgage in the future. However, a common trend is to be much more lenient with someone working through a short sale rather than letting the house go to foreclosure. As an example, the Fannie Mae site, Know Your Options explains you:

May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (at least 7 years)

You can get further information here. However, in a rapidly changing environment, make sure you get the latest information available from the actual lending institutions mentioned.

2.) Impact on Your Credit Score

There has been much dialogue on this issue. The question is whether or not a foreclosure will have a more severe impact on your credit score than a short sale. A recent FICO study sheds needed light on this question. Here is a chart from that report.

The first chart shows the impact on the score for each stage of delinquency, and the second shows how long it takes the score to fully “recover” after the fact.

We can see that there is very little difference in impact on your credit score whether you choose a short sale or a foreclosure.

3.) Impact on Your Family during the Move

Usually a family asking this question is already experiencing major financial difficulties. This may be putting immense pressure on both parents and the children. If you allow your home to go to foreclosure, you move and leave it vacant or you stay waiting for an official to knock on your door demanding you move. That added burden can cause even more stress for a family.

In the short sale process, you work with the bank and pre-determine the day you will move. The new purchasers usually move in the same day. Your family moves with a plan and you don’t leave the neighborhood with a vacant house to deal with. There is a level of dignity in this type of move that does not always take place in a foreclosure situation.

Bottom Line

For several reasons, a short sale may be the better option for your family. It is best to get professional advice if faced with this decision.

Will Sellers Get More Money if They Wait?

Interesting article for sellers who are deciding if now is the best time to sell.

Sellers in any real estate market are looking to get the best possible price. If you are looking to sell in the next year, today’s price may well be the best price. Home values stabilized somewhat in 2010. Many hoped that was a sign that values had bottomed out and we would see price appreciation in 2011. Studies released this week have painted a different picture.




If we look at CoreLogic‘s January Home Price Index (HPI), we see that prices are again beginning to decline:


National home prices, including distressed sales, declined by 5.7 percent in January 2011 compared to January 2010…

Mark Fleming, chief economist with CoreLogic, said, “A number of factors continue to dampen any recovery in the housing market. Negative equity, which limits the mobility of homeowners, weak demand and the overhang of shadow inventory all continue to exert downward pressure on housing prices. We are looking out for renewed demand in the coming months as the spring buying season gets underway to hopefully reduce the downward pressure.”

They are not talking about the spring market increasing or even stabilizing prices. They hope it will “reduce” the pressure to drive prices lower.

Radar Logic’s RPX Composite Price comes to virtually the same conclusion:

Radar Logic believes the RPX Composite price will continue to exhibit year-on-year declines throughout 2011 due to a growing supply of homes for sale and in the inventories of financial institutions, and weakening demand due to the reduction of government incentives for home buyers. Moreover, banks are facing uncertainty over whether they will be forced by regulators to expand mortgage modifications, and may reduce lending and tighten standards as a result.

“No matter what you call it, a ‘double dip’ or the continuation of a long process of deterioration, the current trend in home prices is evidence that housing markets are continuing to languish,” said Quinn Eddins, Director of Research at Radar Logic. “We expect the negative trend to continue under a severe supply overhang that includes a large and growing ‘shadow inventory’ of homes in default or foreclosure.”

Bottom Line

It seems that prices have again begun to fall nationally. With the overhang of existing and shadow inventory, prices will probably continue to decline throughout most of 2011. If you’re thinking of selling, now might be the best time. Check with a local real estate professional to see how this might impact your area.

Lake Tahoe & Truckee February 2011 Real Estate Sales Stats

117 single family homes have sold in our MLS so far for 2011! 48 single family homes sold last month.

The price range that continues to see the most activity is the $300K-$499K range. 17 homes in this price range sold last month. 12 homes sold for $299K or under. 8 homes sold for $500-$699K and 8 homes sold for $700K-$899K. Just 1 home sold for over $1 million last month. The sold price was $1.2 and the home was located in Homewood. 6 of the sold homes last month were short sales and 15 were REOs.

This information was taken from our local multiple listing service and is for the dates of February 1-28, 2011. Click on the image below for an enlarged version of the chart and more info.

Tahoe Donner Market Update – January 2011

Tahoe Donner continues to be a neighborhood with lots of home sales each month. Another 9 homes sold during the month of January 2011.

The least expensive home sales last month was $329K and the most expensive was for $875K. The average home sale price was $566,888 and the median home sale price was $512K. The homes were on the market an average of 175 days. 2 of the sales were short sales and the rest were standard.

There are currently just 76 homes listed in Tahoe Donner. This is a lowest number we have seen in quite some time! 26 homes are under contract. The absorption rate is around 34% and there is just under 3 months supply of inventory remaining in Tahoe Donner. Click on the link for current homes for sale in Tahoe Donner.

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