Short sales mean slow sales

An illuminating take on short sales is contained in the just-released UCLA Anderson Forecast, should one care to tunnel down to page 99, where Ryan Ratcliff, forecast scholar and assistant professor at the University of San Diego, looks at "Inventory Indigestion."

Seems that while Ratcliff was trying to move to that city this summer, he noticed that short sale listings made up a lot of the inventory but few of the sales. An admittedly imperfect parsing of 2008 MLS data for San Diego County supported his observation: short sales accounted for 36% of listings but only 12% of sales. "The short sale listing and its attractive price were essentially just an illusion," he writes.

The home shopper-economist also found that the time between listing and closing was almost six weeks longer for a short sale and that such listings are largely in the bottom half of the home price spectrum.

As short sales relate to the question of a housing rebound, he concludes, that they "have temporarily hijacked the market mechanism" and that "the near-term course of the housing market will be determined more by the procedural timelines of foreclosures and short sale approvals than any notions of a magic price that will clear existing inventory."

There's nothing like a little field research.

-- Lauren Beale

Thoughts? Comments?

Credit: Brucie Rosch 

Comments

[TC]

The short sale listings have turned the MLS into a joke. you literally have to wade through them to find real listings and prices. Usually they list them very low and muddle everything up. There should be a separate listing for "Price Not Guaranteed".

[perks]

Well duh! Why would anyone go through the trouble of dealing with a short sale when there's such a glut of other homes on the market? With such a tremendous inventory sitting available, there's absolutely no reason why a buyer should waste their time waiting for the owner to negotiate with the bank.

Case in point: The house next door to me has been on the market as a short sale for 323 days (and one that has supposedly already been approved by the bank), while every halfway decent foreclosure nearby has sold within a matter of weeks. This doesn't surprise me at all.

[Cal]

Some of the best deals I've seen closed lately were short sales. But it's a needle in a haystack due to multitude of issues that each short sale brings. To the outside world it just looks like a house for sale but underneath the borrowers financial situation, the number of loans on the home, whether they were purchase money or not, who owns each loan and who services the loan all come into play.

The illiquidity of short sales hurts the market a lot and more and more servicers and investors will get smarter and more motivated to get the deals done before it goes to foreclosure.

[Anonymous]

This is partially a chicken/egg situation. There would be no short sale listings if the market values were higher than the debt on these properties. In other words, banks don't want to take the losses. The market is 'hijacked' just because the sellers (really the banks in these cases) don't want to lower prices. It is no different than a delusional seller who is not under water on the mortgage but still thinks his property is worth what it was in 2006. The real problem is that no one wants to accept a loss (or in more clear terms...reality). Trust me, a much lower price point would clear all non-short sale inventory right away, and then the banks would just concede on the short sales and the market would be back to normal.

[Waiting Patiently]

Cal and Anonymous are right. There are good deals to be had in shorts right now, but the banks don't appear to be in any hurry to act on them. We put in a short offer in mid-summer. The bank took 2 months to "officially" look at the file. I imagine each bank's loss mit team has its own "acceptable losses" policy, but I would think reasonable short offers would save them the added expense and further discount that a foreclosure would bring. I suppose it depends on the neighborhood, and what their total overall risk exposure is. We're still pursuing the short because the price is well below the sales comps for anything else in the neighborhood. It's a good value.

[Enlightenment]

Fraud expert: Orange County median should be $300,000
http://www.ocregister.com/articles/
loans-people-house-2167891-bad-home

[sfvrealestate]

As several other posters have noted, short sales can take FOREVER to be approved by the banks. What would you do if you put in an offer on a short sale and it took six weeks to even get a response? You'd probably still be looking, and you'd pull out of your short sale deal if you found something better. That's a lot of what's happening. Also, many Realtors are now listing short sales at "teaser" rates. The idea is to get a bidding war going really quickly, take all the offers to the mortgage holder, and have them pick the best/highest one. If that buyer pulls out, there are a string of other offers to present to the mortgage holder.

[Drew]

We've had 2 short sale situations where the sellers would not sign off on our offer because they wanted to "show the bank they were responsible" by bringing in an offer closer to their mortgage balance.

Needless to say, we dropped out of the running on both properties. And both are still on the market, destined for foreclosure.

[jkr0sc0]

Doesn't the current market turmoil provide even more incentive for banks to push out resolutions of short sales? After all, it's not like banks are clamoring to book their losses. As a corollary, I wonder how fast the short sale process will speed up once the bailout money starts rolling out and losses start getting booked.