As I’ve been blogging for a while, new foreclosure home inventory has been disappearing, and overall housing inventory has been tightening – leading to upward pressure on homes prices. In fact, we expect to see in December 2012’s monthly housing report – close to an 11% yearly gain in 2012 – the first time we’ve seen that since 2006.
The main stream press is no longer suppressing the news that the housing market is well into a solid recovery. This just in from the Wall Street Journal… along with my comments marked as “ALEXIS” below. I’ll give the “rest of the story” when we meet this Wednesday in my live, free webinar for new foreclosure investors (more here).
Inventory Takes Center Stage as Foreclosures Fade
Behind these price gains—which come as good news to millions of homeowners counting on the value of their houses to carry them into retirement, or those looking to sell or borrow against their homes—is rising demand. Investors, first-time homeowners and move-up buyers alike are all re-entering the market as the economy slowly improves and interest rates remain low.
ALEXIS: Yes, I’ve seen this personally and through my clients. We are in a competitive market now where multiple offers are hitting well priced homes. It’s more important than ever that you focus on homes that your competition is now – as in “not listed” homes, dealing directly with the homeowner.
But another reason prices are climbing is that foreclosures are becoming less relevant in the market. CoreLogic reports that about 1.2 million homes, or 3% of all U.S. homes that have a mortgage, were in some stage of the foreclosure process as of November. This figure, known as the foreclosure inventory, is down 20% from a year ago, when 1.5 million, or 3.5% of all mortgaged homes in the country, were going through the foreclosure process.
Also down is the share of home sales that come from what is known as real estate-owned properties, or REO, which refer to homes that have been repossessed by banks through the foreclosure process. According to CoreLogic, the REO share fell from 19.6% to 11.5% between January and November of 2012. To wit: banks are selling fewer repossessed homes, which means less competition for sellers who are not in foreclosure, and eventually, rising prices.
ALEXIS: Yes, I’ve been reporting this for quite some time. New foreclosure recordings peaked quite some time ago. We are headed to a normal housing market, which includes a healthy level of motivated seller, with savvy buyers ready to help.
There are two main reasons that the REO share, and foreclosures, are down. First, of course, is that delinquencies are down: LPS Applied Analytics reported last month that the mortgage delinquency rate fell from 7.83% to 7.12% between November 2011 and November 2012.
Second, banks slowed foreclosures after the “robo-signing” scandal emerged two years ago, revealing widespread abuses and sloppy practices in processing legal paperwork related to seizing homes with delinquent mortgages, and began to focus more on short sales and mortgage modifications. A slower foreclosure process and more short sales and loan mods has meant, over the last year, that fewer properties make it all the way through the foreclosure pipeline to REO status.
ALEXIS: Yes, in most non-judicial states the “REO wave” has already hit and we are now focusing “up the pipeline” to grab deals from the owner before they lose the house – as either a short sale or pre-foreclosure with equity. This is where the best deals will be in 2013.
But the decline in REO share will be less dramatic in 2013, says Sam Khater, CoreLogic’s senior economist. That’s because in non-judicial states like California, Arizona and Nevada, where foreclosures are not always handled by the courts, the foreclosure pipeline has cleared much faster than in judicial states such as Florida, New York and New Jersey. “The foreclosure crisis has shifted east, to the judicial states, where the pipeline is slow,” Mr. Khater said in an interview Thursday, and the pace at which delinquent loans become REO properties has settled at a fairly slow clip.
ALEXIS: Yes, my clients in judicial states have many options to find great deals in their market as pre-foreclosures with equity, short sales and REO sales are all flying high. Pick your favorite system and get to work. You have plenty of deals!
“The big driver in 2012 in prices increases was the decline in REOs, but I think the big move-down has already happened. The driving prices in 2013 will be the tighter inventory.”
ALEXIS: I couldn’t agree more… 2013 will be a fantastic year for foreclosure home investors. Whether you want to quickly flip a deal, making a fast profit without using any of your own cash – or want to buy and hold for solid monthly cash flow and a healthy profit when you sell – the time has never been better.
If you would like to take advantage of the many foreclosure home opportunities that surround you right now, please join me for my live, free webinar “Foreclosure Investing: Make Fast Profits Now” this Wednesday. I’ll share how to find the hidden foreclosure deals that your competition is missing. Plus details on how to put your first deal together without using any of your own cash or credit. Talk to you Wednesday…