Short Sales Are Back... Again

03/19/2014 11:59 AM (CST)

short sales backSometimes we wonder how many more times we’re going to find ourselves writing this message” “Short Sales Are Back”? During the past five years or so, short sales “returned” at least 3-4 times.

To be fair, they didn’t really disappear in the first place. Yes, there were ups and downs, but for those real estate professionals who were willing to get in the game, there was never a time when they couldn’t find a short sale listing lately.

So, when we say “short sales are back”, what we really mean is that real estate professionals, mortgage lenders and general public are once again more willing to accept the fact that there aren’t enough traditional listings, the market hasn’t fixed itself yet, and if a real estate agent wants to be successful, he or she must have at least some short sales in their portfolio.

The real estate marketing is somewhat recovering. For a while, home sales were up, prices were rising, and new houses were being built. Still, in many parts of country, 35 percent of the houses sold are from foreclosures and short sales.

There’s another factor associated with rising prices. Evidence is now widespread that rising prices in last year’s hottest markets have caused investors to cut back their buying. Sharp rise in mortgage rates is also not working as an incentive to buy either. Furthermore, boomerang buyers, although a promising group of roughly the 5.3 million households that lost a home to a foreclosure or short sale from 2007 to 2013, and now may be regrouping to become homeowners again, is proving not to be such a strong buying force.

Most of them have less than perfect credit and most of them are not happy about rising interest rates either. So the boomerang is caught up in a vicious circle and just spinning around rather than returning to its launch location.

As Lee Honish points out, the online brokerage firm Redfin explained in an important February 18 report that sales across the 19 major markets it covers “hit the lowest point in at least four years, falling 9.9% year over year.”

“Home sales had started to weaken in August 2011 and have been trending downward since then. The pundits hardly noticed because they were completely focused on rising prices.  Yet the volume of home sales is at least as important as median home prices”, states Lee Honish.

In Southern California, DataQuick reported that total January sales were the weakest in three years and down 10% from a year earlier.

All of this is a perfect environment for more short sales, especially knowing this: HAMP re-default rates.  

HAMP initiated 12,025 new loan modification trials in January, bringing the total since the program began to 2.16 million.  There were 15,729 trial modifications converted to permanent modification status since the previous MHA report for December.  Of the 1.33 million permanent modifications put in place since the program began in April 2009, 933,900 remained active at the end of January.

So, once again, Lee Honish did the math:

-  933,900
396,100 re-defaulted
30% Default Rate on HAMP

HAMP initiated 12,025 new loan modification trials in January
X______ 30%

3,608 Set to Default on HAMP from January

3,000 per month x 12 months = 36,000 per year

Case closed. Short sales are back. Go get them, they are not going to be here forever… only until they return again.