A few weeks ago we started discussing the feared foreclosure market and listed four ways this next wave is going to be different than the last one. But now the data are here for us to digest and see what is really going on. There's a new report out today from RBI that looks at the distressed sales for the DMV for the first six months of this year. [Who is RBI, you ask? One more time, for the people in the back, there's a local company that manages all the public real estate listings called MRIS. They have a subsidiary company—RBI—that does all the statistical analyses of the data churning through the system then publish fancy graphs every few weeks.]
Now that we've gotten that out of the way, we can get back to foreclosures. We checked back in with John Heithaus, CMO of MRIS, who we interviewed the first time around and he went and got specific on us about the market, what lenders are doing, and how things look for buyers.
The first thing noticeable piece from this report is that there are more short sales than foreclosures. Why is that?
Banks are getting better. They’re waking up and smelling the coffee. What has happened is their asset management have gotten to be more efficient, especially the big lenders. Corroborating evidence is how the days on market and the prices are tightening up. Banks are just getting more adept at managing the process. Some think that the moratorium that was called by the courts gave them more breathing room to get their administrative house in order. So they’re getting a lot better at that front stage.
Besides better banks what else are you seeing with the distressed sale market and the market as a whole?
Mostly, it works to the seller’s favor. We know we’re down by 20-30% in inventory. There is also a less competitive atmosphere because the asset is not as damaged and doesn’t have plywood covering the front door. It’s a less distressed asset. Still the hauntings are not dissimilar, for instance in Northern Virginia we’re seeing that the short sales are selling much quicker and closing faster and have lower fallout. There are different stories around the local market.
How can you tell it is less distressed?
Before we could assume that anything in a foreclosure was going to be in that lower price category, but there are two or three graphs that show that gap narrowing. The distressed assets are being priced closer to the non-distressed, because it’s a higher quality house and potentially in better shape because banks are starting earlier in the process. And they cost less to maintain, since sometimes they let the mortgagees stay in there for free. They’re tuning their strategies to the marketplace.
What strategies are they using?
Earlier engagement. There was a good deal of ‘don’t ask, don’t tell’, but by the same token we saw that there was a 300% increase in delinquency. They’re engaging earlier in the process. I’m sure that their asset management teams are going through training and getting access to reports. They aren’t just using the loan balance to make a decision. They can make real time decisions. Also, the brokerage community has gotten a lot smarter, NAR and the associations that own us are ramping up on how to speak lenderese.
So it isn’t sneaky tactics?
It’s almost a return to basics: price the asset to market. That’s the cool thing about real estate, there are some definite fundamentals that you can’t innovate around. Supply and demand and obviously making sure you get a well-qualified buyer. I know of one situation where someone with a credit score in the high 700s refinanced their house and the lender checked their credit score three times.
The real estate markets love normalcy, they love predictability. That’s exactly what these asset managers want. They don’t want the auctions. They don’t want to sit on the courthouse steps and wonder what is going to happen next.