WHIPSAW: Charts Say We Are In A Seller's Market!

It has been a while since I looked at the charts for Days On Market (DOM).  This metric is used to determine the average number of days a home is on the market before it sells.

Since sales have been robust and inventories have been down, I thought it would be worthwhile to see how this showed up in the the DOM chart.  The chart is frankly shocking:

The red line shows a 12 month moving average to help see past seasonal volatility.  However, notice where I have placed the circles.  In August 2012 our DOM was 59 days.  This is remarkable because the last time the market was this fast was between November and December of 2007!  And unlike back then, today we are trending in the opposite direction. 

There is another interesting distinction about the current market trends.  Notice that since 2011 we have hit several months of homes reaching 120 days or greater.  Our most recent high reading is as recent as March of 2012 at 122 days.  August's reading of 56 means a 66 day drop...the largest and fastest change in days on market in the past 12 years!

So what could be driving this remarkable shift in market conditions?

First, I think that since inventory levels are so low, the limited supply has meant that quality homes are quickly snatched up.  There is a lot of overpriced junk out there, but those won't sell and they don't count in these statistics.

Second, I think that there has been a lot of pent up demand for housing.  Even though new construction has stood still the past few years, our population has continued to increase.  Also, the proportion of qualified buyers in the market has increased with the population and that has created demand for homes.  Renters are converting back into buyers...though not on the scale we saw in the bubble period.

Third, the market is tuning into the fact that the worst of the price declines are behind us.  Prices hit a floor around November 2011.  Since then we have seen mild appreciation and stabilization in prices.

So what does this mean?

The bottom line is that sellers are more likely sell their homes quicker in today's market than they have been in the past five years.  Of course, they have to have equity in their property and the home has to be in decent shape.  But, if these two conditions are met, there appears to be a great opportunity to sell right now.

If you want to see what your home is worth, CONTACT ME, and let's see how fast we can sell your home.      

Weber County Housing Inventory Snapshot: October 2011

A client asked me which markets in Weber County were the "hottest" as far as sales go.  It's an interesting question.  I liken it to asking which body in the cemetery is the warmest.  I was curious myself and ran the numbers.  Here are the findings:

 
This chart measures the "Months of Inventory" available.  In other words, at sales rates over the last 12 months or at the 30-day pace, how long would it take to sell all of the homes that are on the market today. 

Anything under 6 months is considered a healthy market.  Anything over 12 months is considered extremely overstocked.  It appears that the rurul communities of Plain City, Farr West, and Slaterville are doing relatively well along with Hooper.  The upper income communities of North Ogden, Pleasant View, and the resort communites of Eden, Liberty, and Huntsville are still glutted with listings. 

But before you start a pity party, lets take a look at how far we have come from 2009.  Here is a chart I posted a couple years ago:

There was a time when inventory levels were north of 10 months for most of the county.  Check out Eden and Liberty!  Those markets have come a long way to better health today.  Nobody likes an 80 month market time.

The contrast between these two charts shows that the market today is finding an equilibrium point after the shock of the market collapse in 2008.

JUST SOLD! Bargain Cottage Starter Home

I just closed today with some buyers on this quaint starter home in Ogden.  My clients are also my existing tenants who over the past two years have been preparing themselves for home ownership. 

This home was listed in May for $57,000.  Given the price point, we thought that it might be a real fixer upper.  To our surprise, the home was in quite good condition.  Given such, I estimated that the home had been listed below fair market value.  Nevertheless, we pressed our luck and offered $54,800 while asking the seller to pay for $3,500 in closing costs.

The listing agent called me and we determined there was not enough equity room for the seller to pay closing costs even at the list price.  Knowing that we had some headroom on value, we agreed to the idea of increasing the sales price to $59,000.  The seller agreed to pay up to $3,500 in closing costs and also participate in the Own In Ogden program.  However, the seller would not agree to make any FHA or OIO required repairs.  This was a bit of a risk for my buyers because of the age of the home but we felt it was the only way to make the transaction work. 

After 75 days, and a long, precarious, and crazy journey, we finally closed.  Congrats to the buyers on their first home!

Tenacity certainly pays off!

If you are looking to buy a home, contact me.  Bargains abound.

Short Sale Flatline: Wells Fargo Foregoes Defribulator

I have been working on a short sale recently that experienced an untimely death.  In the beginning of July I listed a home in Layton that had a week left before the first scheduled foreclosure auction.  Upon submitting the file to Wells Fargo (the 1st mortgage) for review, they postponed the auction.

I listed the property at $169,900 after a CMA showed the AS-IS value at around $160K-$170K.  By my estimates, the home needed approximately $15K in repairs and was valued at $195K on post-fixup.  We quickly received two cash offers.  One at $155K and one at $158K. 

Upon submission of the offer we were assigned a negotiator and she ordered a BPO (broker price opinion) on the property.  It was handled in about three days.  About a week and a half later a I get an email from the negotiator saying:

Counter offering to $195000 or best and final offer ************************** * Counter offer acceptance is subject to senior management approval, mortgage insurance and /or investor approval * No sale transaction is accepted until lender signs written contracts *

She then attaches paperwork with the counteroffer price of $155,000...the original offer price!  Whoa?  I emailed her to clarify the discrepancy for me.  After several days, I received no response.  So, we kindly filled out the paperwork accepting their $155,000 and sent it back to see if anyone in their office was manning the store.

It took about ten days but the negotiator that sent me that email was suddenly no longer working on our file.  Instead I got an email from a new negotiator.  After several paperwork tasks, I get an email saying that they are countoffering again at $195K but this time they had the right paperwork to back it up.

The buyers didn't want to budge on their price so the negotiator sent me this note:

The BPO completed on the property suggests $20,000.00 in repairs needed to the property even with the value at $195,000.00. Unless the buyer is willing to provide a higher offer, we will not be able to move forward and the offer will have to be declined. On a different note, I want to inform you that I will be out of the office beginning this afternoon through Friday 8/12. I will be back in the office on Monday 8/15 and will continue with any tasks upon my return. If the file is not moving forward, this would be the reason why. Thank you.

I was shocked to get this note.  It seems to me that the BPO agent checked a box wrong on their form.  Here the bank believes the home is worth $195K AS IS.  That is simply not what the market says.  I ran follow up CMAs to confirm and sent them to this negotiator.  Unfortunately, I sent them about an hour after this guy had left for vacation.

The following Monday I recieved this email from a new 3rd negotiator:

Please be advised that the Short Sale for the property above has been declined by Wells Fargo. If you have any additional questions or would like additional details concerning the Short Sale process, please contact Wells Fargo...

Any my immediate response:

What?! We are in the midst of a BPO dispute. [The other negotiator] left for vacation Friday afternoon. He has the BPO dispute findings sitting in his email box which were sent to him about an hour after he left town. So are you saying that the investor would rather take his chances at a trustee sale and/or marketing the place as an REO? I seriously doubt the investor would fare better. Please advise.

No response was ever received.  The home was put on the docket for foreclosure auction again.

The lesson learned here is that garbage in equals garbage out.  When a wild BPO gets done that is 25% over market value, your short sale will almost certainly be in trouble.  

Posted by Jeremy Peterson
Ogden, Utah Real Estate Broker
Mountain Real Estate Companies
801-390-1480

"Distressing" Follow Up On Two Ogden Cities' Charts

Last week I posted Tale of Two Ogden Cities: In Charts showing market metrics and trends for the East Bench of Ogden compared to the Trolley District area just east of Downtown.  One of the most remarkable charts showed the trend on prices.  Here is that chart again:

So what could be driving this decrease in average sale price?  To figure that out, I took a sample of all the homes that sold in these neighborhoods over the last year.  Here is a breakdown:

It looks like there are a significant amount of distressed sales (bank owned and short sale) occurring in both markets.  Here are the percentages illustrated:

So what does this mean?  Well, the red and blue categories are where you want to be buying investment grade "scratch and dent" properties.  The green category is where you want to be selling.

The non-distressed sales compete with the distressed sales in the market.  However, distressed sales typically are not in good physical condition in comparison to non-distressed sales.  Therefore, the distressed sellers will discount these beat up properties to move them off their books. 

What has happened, especially in the Trolley District, is that with half of all sales being distressed, and the price discounted accordingly, the average price is pushed down as we see in the chart at the top.  The average price for non-distressed homes has come down over time but is not nearly as much as the distressed sales. This math all gets mashed up together to produce our trendline in the top chart.

We can see that the East Bench has this dynamic going on as well but to a lesser magnitude. With the mix of distressed sales being diluted, that explains why the average price has not come down nearly as much as the Trolley District.   

Nevertheless, homes can and will be sold at top dollar in this market.  The catch is that the home needs to be free from deferred maintenance and in pristine condition.  Here is an example.  Patience is also necessary because market times are 4 to 5 months for these kinds of properties right now. 

The Tale of Two Ogden Cities: In Charts

In Ogden there is a strong bifurcating force called Harrison Blvd.  I was toying around with the MLS statistics the other day and I thought I would explore exactly what the differences are between the "East Bench" which is located east of Harrison Blvd. and bounded by 20th Street to 36th Street as compared to "The Trolly District" which encompasses 20th to 30th Streets west of Harrison Blvd to Washington Blvd.  

Queue the charts please....

In this first chart, you can see that the Trolley District has had more sales per month on average than the East Bench.  Part of that may have to do with density being lower on the East Bench.  Its interesting to see that sales peaked on the bench in the summer of 2006 while the Trolley District had a cathartic surge in the summer of 2007 (which then quickly collapsed as the subprime fiasco tanked the mortgage markets).  The moving average for sales volumes for both areas of Ogden are back to 2001-2002 levels.

 
This next chart shows the median days on market for each month.  You can see that during the bubble that market times were extremely short for the East Bench and moderate in the Trolley District.  Since sales volume has been so low for the last several years there is a ton of noise in the chart.  The moving average helps us get a better idea where things are trending.  Market times are now longer for the East Bench than they are for the Trolley District on average.

Finally, here is the chart that everyone wants to see.  Where are values headed?  Well, on average, they have been headed down.  Again, notice the "noise" that exists in recent years due to the low sales volume.  The data shows the range of values.  Fortunately, the movement down has been so slow that it is still profitable to fix and resell homes...as long as you don't take years to complete your project.  Another interesting thing to see is that homes on the East Bench are typically priced 50% more than homes in the Trolley District.  East Bench values also tend to lead in price movement.  Additionally, while the Trolley District has returned to pre-bubble price levels, the East Bench has not yet given up all of its gains.  This may have to do with the fact that more homeowners live in their homes on the East Bench than those in the Trolley District.  Owner occupants are less likely to sacrifice on price when they sell their homes thus making prices "sticky".

JUST SOLD! Affordable Craftsman Bungalow

We just closed yesterday on this home I listed:

We originally listed this 2 bed 2 bath home in January for $72,900.  The first week in March we lowered the price to $69,900.  About a week later we received an offer for $62,000 which included all my client's staging furniture.  We countered at $67,500 which the buyer accepted and finally closed this week.  Congrats to both buyer and seller!

Lead Balloons: Sales Plunge 37%

It's winter in August:

July turned out to be the third worst sales month (even including winter months) in the last five years.  Only January and February of this calendar year were worse.  Lets take a look at our sales growth graph:

Keep in mind that this is a monthly chart that compares same month sales year-over-year.  Anything above zero represents sales growth above the same time the previous year and anything below zero represents market contraction for the same period.  Our Y-o-Y sales are down 37% from July 2009.  Yikes!

What we are witnessing is an erosion of confidence in the housing market.  With unemployment remaining high, increased taxes on the horizon, and political angst near a boiling point, buyers have decided to wait things out for some sunshine.

For sellers, this means that market times will increase for quality properties and prices may soften somewhat as the most motivated sellers cut prices to liquidate their homes.  For buyers, this means that the world is your oyster...for the moment.

I anticipate that the pattern we are in will continue through the end of the year with us returning to a normal seasonal pattern with the beginning of the calendar year.  Then we should see some life come back into the marketplace.

Scenes from the Land of Short Sales: OCWEN

I am working on negotiating a short sale right now. We are just getting started with the process. This particular property has a first and second mortgage that were originated as an 80/20 purchase loan. Both of the mortgages were sold to separate secondary market investors after the loan closed. The second mortgage is now with OCWEN.

Second mortgages will often lose everything if the home goes to foreclosure auction as an action of the 1st mortgage. Another interesting fact is that typically 2nd mortgages are recourse, meaning that the lender can go after the borrower for a deficiency in paying off the balance, if the mortgage was not part of the purchase of the home.  You see this alot with HELOCs and debt consolidation 2nds. However, in our 80/20 case, the second mortgage was definitely a part of the purchase and is therefore non-recourse.

I give you this background information because OCWEN sent me a short sale packet to fill out for my clients. One of the forms caught my attention:

Notice that there is not a check box for not signing a promissory note.  It's kind of like the options I give my kids at dinner:  You can have mash potatoes or you can have mash pototoes...its your choice. 

Getting into the short sale with OCWEN should be interesting.  Hopefully they will realize the loan is a purchase loan and waive the promissory note requirement. If they demand one, it may scuttle our success in accomplishing this particular short sale. 

REO Phenomena From Another Perspective

The Washington Post has an interesting article about the REO market there.  I thought the story sounded oddly familiar Cash-Rich Real Estate Investors Trigger Bidding Wars, Frustrate Other Buyers.


Here are some excerpts:

Investors have reemerged with brute force in the Washington region's real estate market over the past few months, triggering bidding wars in some neighborhoods teeming with foreclosed properties and hindering traditional home buyers...

Does this sound familiar?

With interest rates low and home prices way down from their peaks, all-cash investors are snapping up the cheapest properties and helping clear out the excess supply of homes on the market. They're betting that the market has hit bottom or will soon.

"What's happening in this area reflects what's happening in other parts of the country," said Sam Khater, senior economist at First American CoreLogic, which plans to release a report soon on all-cash deals. "In markets where price declines have been steep, we've seen quite a bit of competition between the low-end, first-time home buyers and investors."

It seems like this very phenomena is happening in the starter neighborhoods across Utah.  The below anecdote is very insightful and I believe explains one strategy being used in purchasing distressed property right now:

To successfully compete with this investor class, real estate agent Jennifer Bridges recently advised one of her clients to offer $275,000 on a Woodbridge townhouse listed for $219,000. After reviewing the prices of similar homes in the area, Bridges concluded that the home (a foreclosure) was listed well below its value to induce a bidding war.

"When the agent called the following day to say they'd accepted our offer, I was screaming a the top of my lungs," said Bridges, who is with ERA Blue Diamond Realty. "They had 14 offers, including some cash offers, but the agent said he felt ours was better. He didn't specify why."

Robert Bauman, the buyer, was downright ecstatic when he ended up paying $13,000 less than he'd offered because the appraisal came in that much lower. "It was so rewarding after having lost so many bidding wars," Bauman said. (emphasis added)

I think we saw this strategy on the bidding war for 2176 Jefferson Ave. a couple weeks ago.  And to sum up...

"There's a big difference between [the all-cash] investor and the flipper of the housing bubble, who put no money down," said Mark Zandi, chief economist at Moody's Economy.com. "This person has all the skin in the game, and that's encouraging. It suggests that housing in the area is now appropriately valued or maybe even undervalued."

I think Mark Zandi hits the nail on the head.  The market is telling us that prices are at or below "appropriate" value.  I still believe that while prices may have bottomed, they arn't going to be shooting sky high in the near future.  Investing for cash flow or a rehab flip are still viable options.  However, cash flow investors will beat out rehab flippers most of the time due to the lack of capital improvements they make to property. Rehab flippers will always need more room to compensate for resale risk and capital improvement risk.

Project Victorian Tour: 321 27th Street

For those of you who love restoration projects and old homes, please consider this property:

Part 1



Part 2

Market Times Continue Climb

Here is an update of our Days-On-Market chart:



For homes that are selling, we are nearing the 90 day mark. This increase can be attributed to higher inventory levels and fewer buyers in the marketplace.

Days-On-Market Update

To those of us in the business, this chart isn't really news. However, its nice to quantify what is going on out there in the marketplace.

Note: Black line is moving average.

What is interesting to me in this chart is the lack of seasonal variability that you see after July '07. Prior to then you had big and consistent swings between summer and winter months. That isn't a part of the current trend right now. Just one more thing for us to watch and see what happens.