Posted on May 22nd, 2008 in Mr Mortgage's Personal Opinions/Research
DataQuick just released its April Home Sales report. ‘More homes sold’, which on the surface looks great. But in reality, banks took back TWICE the number of homes they sold, which adds to inventory and extends the housing crisis, contrary to what the monthly sales report would suggest. On Friday we get the national NAR Existing Home Sales report and it may look similar, so now you will know what to look out for.
DataQuick reported that a total of 31,150 new and resale houses and condos were sold statewide last month, up 26.8 percent from March and down 10.9% from April last year. Last month’s total made for the slowest April since 1995. The question here is, ‘are we chewing through inventory’ and the answer is, NO.
Of the sales, 37.7% (11,750) were foreclosure resale’s. Most of this 11,750 is from the bank REO stock, which is the ‘shadow inventory’I always talk about. These homes are typically sold through real estate agents or large auction aggregators such as the Real Estate Disposition Corp (REDC). Bank REO sales are counted in the existing home sales figures released each month that gets the stock market so hot and bothered. Only a very small percentage of bank REO has been sold each month until very recently when the numbers increased dramatically.
These homes are being sold at massive discounts to the note amount and pose the real threat to home prices across the nation. All over the country, neighborhoods are being marked-to-market overnight due to REO stock being dumped that was never shown as part of the listed housing stock in the first place. At 37.7% of all sales, this inventory is quickly becoming ‘the market’ and is rarely accounted for in the ‘month’s supply’ numbers released each month by the NRA because it is not listed in the MLS in most cases. I talk about it in my April Foreclosure Report released last week.
Last month according to Foreclosure Radar, 22,324 homes were taken back by banks in CA. If there were 11,750 REO homes sold, this means that the ‘month’s supply’ figure is actually growing each month despite sales figures improving. If you back out the 11,750 from the total of 31,150 and just look at ‘organic sales’, there were more homes taken back than sold. It is a real problem when the headline sales number is growing and according to the MLS the supply is shrinking, but in reality the true inventory numbers are actually ballooning due to the bank REO growing faster.
VERY IMPORTANT – Keep in mind that the 22,324 homes that the lenders took back in April were from Notices-of-Default from approx Dec, when there were 33k. In Jan, Feb, March and April there were 38,600, 37,300, 42,700 and 44,100 NOD’s respectively and in the past few months we have seen an increase to about 70% make it from NOD all the way to REO. This means that over the next few months banks will take back up to 31k homes per month, so sales better really pick up or the bank REO inventory will just get worse.
In a nutshell, there were 11,750 foreclosure resale’s, versus 22,324 that banks took back at auction using data provided by Foreclosure Radar. That is approximately $4.4 BILLION added to REO. In addition, the 22,324 were from Dec’s 33k NOD’s meaning we still have 162,700 NOD’s from Jan to Apr that will result in 113,400 bank REO additions over the next four months or $47 BILLION worth. With only 31,150 total homes sold this month, sales better grow quickly to absorb all the foreclosure inventory already in the channel.
If sales do grow and the number of foreclosure sales continue to grow as a percentage of total sales, where does this leave Joe and Jane Homeowner and the Builders? If sales do not grow and foreclosure sales continue to grow as a percentage of total sales, we have the makings of a absolute meltdown on our hands. -Best Mr Mortgage
The above is from Mr Mortgage, based upon personal research.
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