Short Sales Exposed; Insiders Tell All

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March 2010 Greater Phoenix Sales Numbers are out. OOPS!

So I get this email from a well respected real estate professional containing a report on last month’s real estate sales numbers here in the Greater Phoenix Market. It was delivered with such fanfare.

Highest number of sales since July 2009! (what was so particular with 2009?), Highest number of short sales for a month ever (this is a good thing?), Other Sales took over lender-owned for the first time since October 2008 and March median home sale prices are up!

Wow, what great news! Really? Let's dive deeper

January 2008 we had residential sales at 2,912 with a median home price of $220,000 which was the lowest number of units going back before 2005.

At the peak we had residential sales of 10,252 in June of 2005 with median sales price of $250,000.

Ok, so now we are supposed to be happy with March of 2010. It came in at 8,991 units with a median sales price of $128,000. OOPS! This was a good month? No, it is not good. Remember that we have the specter of the phantom inventory? Hmmmm. Do you think that it is unloading? Let's look further.

March 2009 is presented as this big increase. Really? If we look deeper March 2010 came in at median home price of $128k, it is true that March 2009 was only $120k. So, it is up? No, it isn't. Jan '09 was $130K, September '09 was $130K, Dec '09 was $127K. We are about as flat as a board. What was going on in Feb to May of '09 which were the only months lower.....oh yeah, HAMP rolled out and the mortgage moratorium ended.

Here are the really disastrous numbers. Average Price Per Square Foot. Keep in mind that the No Other Listing Condition category describes homes that are not Lender Owned or Short Sale

Lender Owned; June 2009 $63.86, March 2010 $67.82, not a very significant increase but an increase none the less and way below even cost to construct but possibly a sign that lenders are getting more for the home? Maybe not.

Short Sale; June 2009 $82.88, March 2010 $77.06. Oh crap! So now with REO going up and short sales going down short sales are barely $10.00 per square foot more than an REO. If that keeps up that NPV test is going to drive more homes into foreclosure

No Special Listing; June 2009 $117.90, March 2010 $104.12. Now this is the key number to all of the numbers in the report. An over 10% drop in price per square foot for homes that are non distressed sales or the flips and fixes of previous foreclosures or distressed sales. In all I believe this spells the beginning of the next dip in our market. We have all spoken about the phantom inventory and what happens when those properties come back in. That means that we just lost over 10% of the equity in our homes in the last year alone. We are definitely not at bottom.

Time to pay close attention. If we are going to get excited about high sales last month keep in mind that the median home price is half of what it was in our worse month of unit sales. This is median not the mean or average. What does that mean to you? It means that average prices on homes have dropped over 60%. So that really bad year of 2,912 sales at $220,000 median price was actually equal to last month’s 8,991 at median of $128,000.

Nationally we will hear all those good things about the market and sales are improving, with a footnote that they qualified them as "seasonally adjusted", while AZ is not out of the woods yet.

Time For Principal Reduction

These are extraordinary times and they call for extraordinary approaches. Here are 10 reasons why reducing loan balances and restoring lost equity is the best approach now.

1. What we are doing to address the problem isn’t working.
It isn’t going to work and, in fact, the longer we pretend that there will be significant loan modifications, the worse things are going to get.

2. Everyone who is upside down should get relief.
By “re-equifying” those households, we free up consumer spending, stimulate lending, and start putting people back to work—everyone wins.

3. It will cost less.
By keeping people in their homes, we reduce the costs of social services that are breaking the budgets in every community.

4. We were all gamed by the system.
The system was set up to benefit someone. Lets' stop pointing blame.

5. It will happen anyway.
The equity is gone; the loss is real. Foreclosure is the most expensive, least desirable way to bring the property back to its true market value

6. We all win if we do and we all lose if we don’t.
I’m sure that a handful of people who haven’t felt some real pain may be taking some perverse pleasure in watching their neighbors pack up and leave, but when you hear the stories of some of the homeowners who have stayed in vacant neighborhoods, the actual cost to those who remain is probably greater.

7. Borrowers and investors both gain.
Securitized loans put the investor and the borrower in same boat. Both were defrauded by the financial intermediaries and neither has received any remedy for their losses.
Trillions for financial intermediaries and nothing for the parties that were scammed. Instead of giving the money to the financial intermediaries that perpetrated this Ponzi scheme, it should have gone to the investors who were willing to accept the reduction in value of the pool. Instead, we give the money to the financial intermediaries who conceal the values of the assets. It’s a game.

8. We can afford to do it; we cannot afford not to.
Since the start of the meltdown, the Fed has amassed a whopping $9 trillion in loans to foreigners, but they will not say and, apparently there is no record of, where the money went. That’s $30,000 for every man, woman and child in America. That’s our money and right now, we need it.
At the moment, Congress is pushing for an audit of the fed, something that hasn’t been done in over ninety years. You would think everyone who is working for the taxpayer would want the taxpayer to know where their money is going, but this is shaping up to be one heck of a fight.

9. Some players in the mortgage arena are starting to get it.
Wilbur Ross owns American Home Mortgage Servicing, Inc. one of the largest mortgage servicers in the country and he recently became one of the leading advocates for principal reduction. His reason, loans with significant principle reduction that give the owner equity in the property stay current.
In an interview with HousingWire he said, “The price of housing needs to be cleaned out. The Obama administration could right-size every underwater home and reduce principal to fit the current market value of the home. If they are going to deal with it they have to deal with it in a severe way.”
This was demonstrated in a study by investment firm Ellington Management which showed that every month, 8% of homeowners whose mortgages were 160% of the value of the home became delinquent while only one percent of those with loans that were 60% of value become delinquent.

10. It would jump start the economy.
Uncertainty isn’t good for the economy. Not knowing how far values will fall, not knowing when job losses will abate, and seeing no light at the end of the tunnel are paralyzing. Not just to consumers, but also to small business owners who are the hiring engines we need to pull us out of this recession. They need to know that consumers can and will spend before they start rehiring.

By restoring the lost equity in homes, we immediately stabilize real estate prices by establishing a “floor” and the true market value of property.
By stopping foreclosures, communities start to see their tax basis improve. They can start to rehire laid off workers such as teachers and emergency responders.

As distasteful as this may be to some people, it’s time to admit that there are no other solutions. The value is gone, never was really there, a few people got rich, a lot of people got poor, and now we have to fix it.

Loan Modifications Are A Scam!