There was a rather disturbing article in Sunday’s Charlotte Observer:  Housing glut looms behind region’s ‘shadow inventory’.   It is not the whole issue of shadow inventory that is disturbing but rather the tone of the article, starting with the ominous title itself.  Home buyers are already extraordinarily nervous, why add relatively useless fuel to this fire?

Before I go any further, I need to address the definition of shadow inventory which is widely disputed:  The Shadow Inventory Debate.  For the sake of this article, I am defining shadow inventory as any home where there is a delinquent mortgage and has not been foreclosed upon by the lien holder.  While most of these are not listed for sale and may not be for years, some homes currently on the market in Lake Norman have been in the foreclosure process for several years but the sellers have been preemptive and have listed their homes as distressed.

If you are a regular reader you know two things about this blog, I love analyzing and interpreting the very specific numbers and data for Lake Norman’s housing market and I work hard to separate our local market from the broad brush media headlines about real estate.

While you might think that the Charlotte Observer’s article is specific enough to be applicable to our Lake Norman housing market, it simply isn’t and here is why:

The Facts:

Distressed Properties in Lake Norman’s Current Housing Market:

• Only 10% ( 76 ) of Lake Norman’s homes for sale listed in the MLS are “distressed”  (Short Sales, In Foreclosure Process or Bank Owned).
• 68% (52) of these distressed properties are short sales or in the foreclosure process so have not yet been foreclosed and would thus fall in to the category of  “shadow inventory” already based upon the definition above.
• An additional 5% (4) properties are “In the Foreclosure Process” which means a total of 73% of our distress properties currently on the market for sale would be considered ”shadow inventory” or properties in default or delinquent but not yet foreclosed upon.
• Only 20 of our 76 distressed properties for sale are foreclosures that are bank owned and have completed the foreclosure process.
• Take aways:  Today, distressed properties of any kind make up a relatively small portion of our current Lake Norman real estate market. And, a good portion of the distressed properties we do have are pre-foreclosures which would fall under the umbrella of shadow inventory indicating that Lake Norman homeowners are not waiting to be foreclosed upon but are electing to negotiate short sales if possible.  Yes, there may be many more properties in the foreclosure process that aren’t listed that are what the Charlotte Observer article are referring to but some at least are already on the market.

State of the levels of inventory of homes for sale in Lake Norman compared to prior years:

• Today we have 752 active listings in the entire Lake Norman (area 13 in our MLS) area as compared to 1023 at the same time last year (-26%), 1161 in 2009 (-35%), and 1406 in 2008 (-47%).
• Our number of active listings is about half of what they were in 2008 at the beginning of our recession!
• So, even if we were to increase our number of homes for sale in Lake Norman with “shadow inventory” in the future as predicted in the article by 2000+ over the next few years they are not going to hit us all at once and given our very low inventory right now most likely won’t be harmful but rather a boost to our sales.
• As David Benham was quoted in the article: ‘Demand, he said, outstrips supply…”Everything we have is flying off the shelf… The inventory’s not there”.
• Like several quoted in the article, I have a number of buyers looking for and waiting for more bargains to hit the market.  However, the tables have turned in the Lake Norman area to a certain extent because the demand for bargains is higher than the supply.

Price Range of Distressed Properties

• Of the 76 active distressed listings in Lake Norman today 26 or one third are under $300,000,  and two thirds are under $500,000.
• Of the 20 distressed sales last month, 17 were under $500,000.
• Clearly, our very lowest price ranges are most vulnerable to foreclosures at this time.  Several years ago we had a number of waterfront homes in higher price ranges as well as the left over inventory of new construction spec homes in higher end communities like The Point but these are gone and with no new construction of spec homes are not being replaced.

In general, home buyers looking in the Lake Norman area, just as else where, share a heavy skepticism about whether now is a good time to buy.   As the article said “The mere thought of shadow inventory can make potential buyers wary of investing of real estate.”  While a bit of caution is healthy, my concern is that buyers will hold out for bargains like we were selling two years ago and may not see again rather than take advantage of what we do have right now.

If you are one of these buyers, I simply can’t stress enough how important it is to get a thorough analysis of  the specific neighborhoods, areas and price range that you are considering and base your actions upon these facts not the broad brush news you read in the news.

There are myriad sites online dedicated to detailed explanations about foreclosures. This is not going to be another “how to” guide.  Instead, I am going to try to provide you with some insight and examples of  real hurdles encountered during my recent experiences representing Lake Norman buyers through the process of purchasing foreclosures or bank-owned properties (REOs).  In my next post I will do the same for shortsales.

If you take only one thing away from reading this post, it should be that no two sales transactions are alike.  Be prepared for the unexpected.  That said,

 

REOs (Real Estate Owned) or Bank Owned properties are MUCH easier to purchase than ShortSales

When a bank owns a property, you can usually count on the fact that as a seller they are going to care about one thing and one thing only:  their bottom line.  They have been through the long foreclosure process, they own this property along with many others and they want it off of their books.  It’s about as unemotional a transaction from their perspective as is possible.

Most of the time the listing agents of REO properties do nothing but REOs.  They have been hired by a bank because they are good at processing paperwork and working with the bank’s systems and staff.  They want a quick, easy sale.  It is all about numbers to them as well.  This is a business transaction, it is not about relationships or empathy.  In the case of several of my buyer’s REO purchases the listing agents had never even seen the property and their offices were located far from the listing.  In most cases I have found that these agents really don’t want to be contacted unless it is really important.  They want the buyer to fill out the paperwork to the satisfaction of their sellers including each banks’ own addenda protecting them from just about everything.  They don’t want to hear about repairs or problems related to the inspections or even having utilities turned on or the property de-winterized for inspections. (But they will when prodded).  Take it or leave it and the sooner the better. The only thing they worry about, and rightfully so these days, is the buyer’s loan. Always be preapproved and have your loan pretty much in place before writing an offer. 

REO’s come in many different states of condition.  In some cases, especially if they are new construction, they will be in excellent condition.  There are some beautiful new construction foreclosures that I have shown in communities like The Point, The Farms, Bay Crossing and Northington Woods.  Our Lake Norman home builders have been hit particularly hard these past two years; many have gone under leaving an inventory of spec homes some of which are still active listings.

However, many homes, especially those that were lived in and abandoned by the homeowners, can be in various states of disrepair.  I have seen houses that have been stripped of everything including cabinets, toilets, appliances and light fixtures. Some have been trashed by their angry owners before leaving.  I’ve seen holes in walls, shattered doors and the like.  Others are truly “fixers” in every sense of the word.  Some new construction homes, especially close to the lake, were abandoned by the builders before completion so the buyer will have to finish the work and get the permits signed off before moving in. It is especially important to look for signs of moisture problems. (From broken pipes to drainage issues.  When homes sit vacant many things can happen and go unaddressed.) It is important to be diligent about inspections of bank-owned properties!

One of the homes I sold several months ago had had mold as a result of some moisture issues which had been such a detriment that the bank actually had the mold remediated.  My buyer was willing to take on the moisture issues (after numerous inspections and estimates by mold and moisture experts) and the other repairs related in most part to the house having been vacant for 2 years.  The result?  My buyers purchased a 7000 sq. ft. $1Million+ waterfront home with a dock in the$600,000s. 

Banks do negotiate.  They get really tired of low-ball offers by investors.  In my experiences, the banks came down in price more than the listing agents expected.  (About 8% in one case).  Banks tend to use pricing systems that dictate price reductions on a schedule.  But, they also want these properties off of their books.  I had one offer accepted on a Friday afternoon after the listing agent had told me there was no way it would be accepted.  Perhaps on that Friday afternoon the bank looked at their numbers and decided they needed to get more properties off of their books.  Don’t give up!

Know the recent comparable sales and determine ahead of time what price you are willing to pay based upon those comps and the amount of out-of pocket expenses for repairs.  As long as your inspections and loan goes smoothly, you should be able to close the sale within a short period of time with little drama.  (Of course, your own loan and the inspections could add a bit of hard work).

If you are willing to take on a house that has issues and no disclosures or warranties then an REO may be for you.  Inspect the property thoroughly with experts in their fields so you know what you are buying.   

Stay tuned for Part 2 of this series which will share some of my experiences with short sales.

RELATED ARTICLES

Lake Norman Real Estate:  How YOU can search for distressed homes for sale

Lake Norman Real Estate:  Foreclosures and Unemployment Rates

 Lake Norman Real Estate:  Are Waterfront Homes a Bargain in 2009?

 Lake Norman Real Estate:  Why is it so hard to buy a home right now?

 I decided to analyze just the sales month-to-date for this month, January 2010, by reading each sold listing’s individual MLS  listing information and remarks to figure out the actual category in which to place each sale.  So far 40 homes have been reported as sold this month.  I broke down these sales into four categories:

Type of Sale 

• Foreclosures:  There were 12 bank-owned properties that sold representing 30% of our total sales this month.
• Shortsales:  3 sales indicated in the remarks that they were short sales representing 7.5% of our total.
• Bargains/Sell below tax values: 16 properties sold below their assessed tax values, in some cased substantially below.  These represent 40% of the total sales.
• Regular Sales/Sales above tax values: A total of 9 properties sold at or above the assessed tax values.  It is impossible to know from the MLS data if any of these were distressed but there was no indication that they were in their remarks. These represent 22.5% of our total sales this month.

Sales by Price Range 

• Up to $250,000:   17   or     42.5%
• $251,000 – $500,000:   15   or    37.5%
• $500,000+ :    8   or      20%

Lake Norman Area 

• Iredell County/Mooresville:   24   or   60%
• Mecklenburg County/Cornelius % Huntersville:     6   or    15%
• Lincoln County/Denver:     8    or    20%
• Catawba County/Sherrills Ford:     2    or      5%

Summary

• This past month approximately 4 out of every 5 sales were distressed in some way.  Slightly over one third were foreclosures and shortsales and another 40% sold well below their assessed tax values.  There is no doubt that bargains are what are driving our Lake Norman home sales right now just as they have for quite some time.
• 42.5% of all of our January sales were $250,000 or less and 80% were $500,000 or less.
• 60% of our sales were in the greater Mooresville area in Iredell County. The second most active area was Denver.  It is interesting to see how few homes sold in Cornelius, Huntersville and Sherrills Ford.

 As I have written before, there are truly two different kinds of active listings in our Lake Norman area.  There is the group of distressed properties that are listed well below the historic highs and  then there are the majority of active listings that are priced at levels more appropriate for two years or more ago. 

There is a great disparity growing between the prices of properties that have sold in specific neighborhood or community and the current active listings that are not yet distressed sales. I have found this in such neighborhoods as The Point, The Harbour, Bay Crossing.  The disparity can be as much as $50 per square foot!  Serious buyers know the recent low sales numbers so get frustrated when they view comparable active listings that are priced significantly higher. 

The million dollar question is what is going to happen to all of our active listings that are over priced?  Are they too headed for foreclosure or will the sellers simply wait out the market?

Unfortunately, Short Sales and Foreclosures are where the action is right now in Lake Norman home sales.  Recently, our Charlotte Multiple Listing Service added a new search field for Realtor members which enables us to search for properties that are in “distress”.  However, at this time our MLS is not providing this same capability to the public.  If you are using my property search program or any other you will not be able to specifically search for short sales or foreclosures.

I contacted the company that provides my home search program  and got them to send me a link that will allow you to search for “possible distressed properties”.  What they have done is create a program that searches the “remarks” that the listing agent inputs regarding the listing for any words that might be flagged to indicate a seller is in distress.  It seeks out words like short sale, foreclosure or auction.

I am not yet able to put this search option permanently on my website but if you bookmark this page you can use this link:  http://lknrealty.localhomesearch.net/idx/distress.  Then put a check by “Search for possible distresed sales” and then add your additonal search parameters.

Let me know if you find this helpful!  As soon as our MLS allows it, I will provide you with the ability to search for short sales, foreclosures and auctions.

Related Articles

Lake Norman Real Estate:  Foreclosures and Unemployment Rates

 Lake Norman Real Estate:  Are Waterfront Homes a Bargain in 2009?

 Lake Norman Real Estate:  Why is it so hard to buy a home right now?

In today’s real estate market, both here in the Lake Norman area as well as the entire country, economic data changes daily.  This is especially true of  the number of home foreclosures.  And it is particularly difficult to stay on top of our local numbers as they are not as readily available.

That is why I got pretty excited when I learned about  this interactive map on the  National Public Radio’s website: Interactive Map:  The Economy Where You Live.  If you click on the link a map of the United States will appear with the option to search three different numbers BY COUNTY: 

1. Foreclosure Rates
2. Unemployment Rates
3. Median Household Income

These numbers are updated regularly so you can keep track of trends by county not only where you might be buying but where you are currently living as well.

Today’s numbers for our four Lake Norman counties:

Iredell (including Mooresville, Troutman,Statesville):

• Foreclosures:  1 in 1662 (one out of every 1662 homes are currently in foreclosure)
• Unemployment rate: 13%

Mecklenburg (including Charlotte, Huntersville, Cornelius, Davidson):

• Foreclosures:  1 in 213
• Unemployment rate: 11.7%

Catawba (including Sherrills Ford, Terrell, Hickory):

• Foreclosures:  1 in 2479
• Unemployment rate: 14.9%

Lincoln (Including Denver, Lincolnton):

• Foreclosures:  1 in 1401
• Unemployment rate: 14.5%

While I have included which Lake Norman cities fall in each county, it is important to know that there are many other cities in these counties, especially Mecklenburg which includes the greater Charlotte metropolitan area.  It is clear that the more densely populated areas in Mecklenburg County are experiencing a much greater number of foreclosures than the other counties surrounding Lake Norman.

In a report released by RealtyTrac today, the foreclosure related filings in August were ranked by state, the worst being:

1. Nevada:  1 in 62
2. Florida: 1 in 140
3. California: 1 in 144
4. Arizona: 1 in 150
5. Michigan: 1 in 234

According to this report, one in every 357 U.S. homes was subjected to a foreclosure-related filing in August.

Overall, the Lake Norman area is doing considerably better than the country but the numbers are not currently trending in a positive direction. 

I plan on checking these maps on a regular basis to watch for changes!