Jonathan Miller, CEO of the real estate appraisal firm MillerSamuel and number cruncher extraordinaire, has looked at the numbers for distressed sales in our area. Here is the latest installment of his Curbed column Three Cents Worth.
There has been a lot of "double dip" talk of late, far removed from the "double flip" conversations prevalent during mid-decade. I wanted peel back the distressed layer of the DMV onion and take a look. I define "distressed sales" as short sales and REO properties (foreclosures). Nationally, distressed sales are the key to understanding the US housing market and the headlines we read every month – DC Metro is no exception. When all sale types are lumped into one big pile (of onions), it can be hard (or impossible) to decipher the housing market without some serious bad breath.
Using the data from RBI, the data/analytics arm of MRIS (www.rbintel.com), I've observed the following for DC Metro over the past 2 years:
- Non-distressed housing sales prices (excluding short sales and foreclosures), are generally stable as they hovered around $400k over the past 2 years. The ups and downs reflect the impact of the federal homebuyers tax credit and plain old seasonality.
- Distressed housing sales prices have been sliding at a consistent rate for the past two years, seemingly impervious to seasonality and any impact from the 2009 and 2010 federal tax credit.
- Distressed sales sold for 39.5% less than non-distressed two years ago (April 2009). The gap has expanded to 58.3% as of April 2011. It is important to note that these two submarkets have different characteristics (distressed sales have a larger share of smaller entry-level) and therefore these discounts do not represent a "distressed discount", but merely shows that the spread is widening as distressed sales prices continue to fall.
- Market share of distressed sales has been highly volatile over the past two years, subject to swings in seasonality. As non-distressed sales typically ease at the end of the year during the holiday/winter months, the remaining market, distressed sales, reflect a higher market share of overall sales. (The data being analyzed are closed sales with a 60-90 day lag from contract signing.)
- Rising market share of distressed sales is expected as lenders push to release more REO inventory and be more reactive in short sale situations. This trend would have been evident last fall but the mortgage servicer robo-signing scandal slowed their release as mortgage services wanted to make sure their robo-signers didn't have hand cramps (By that I mean that the documents were properly handled). It is also the general perception that overall conditions have improved and it's time to try to maximize their collateral recapture.
- Rising REO inventory may continue to drive down distressed sales prices. Even though distressed and non-distressed sales represent generally different markets, the rise in REO inventory may temper any meaningful improvement in the the non-distressed housing market by keep credit conditions tight.