October 10, 2016

More foreclosures might help improve the inventory pinch, but……


There's a buzz in the real estate community that banks still holding foreclosure properties are getting ready to put them on the market. Considering the state of the current inventory of homes for sale might be good news, if that’s true.  Even if it's just wishful thinking, foreclosure filing trends indicate there could be an uptick of offerings in the not too distant future.

Before jumping into the foreclosure pros and cons, it's worth a few seconds to look at some current local housing market benchmarks.

Real estate professionals look at inventory several different ways.  According to Realtor Property Resource data, at the end of August, there was 24% fewer active listings of homes for sale than there were August last year. That's a 13-month low point.

Another way to look at inventory is months of inventory. In layman's terms it simply means the number of months it would take to exhaust active listing at the current sales rate. Our sales rate has been high for a year and a half. Months of inventory for August was 5.6 for the 11-county market the Northeast Tennessee Association of Realtors tracks. Last year it was 7.8 months. By local standards that was low.  Although the rule of thumb for a normal market is six months of inventory, nine to 10 months has been the local benchmark.

Balancing those metrics is the number of new listings.  There is short-term good news. In August they were up 9%. It was the first year-over-year increase since April.  

NETAR's Trends Report shows there were 407 foreclosure sales during the first half of this year. Of course, that count is only foreclosures marketed on the Regional Multiple Listing Service, which doesn't include all foreclosures. During the first half of last year, there were 411 foreclosure sales, according to the Trends Report.  Foreclosure sales are accounting for fewer shares of total sales than they did last year. That simply means that while foreclosures sales have remained fairly constant, the sales pace has burned through the inventory of non-stressed sales faster.

Last year RealtyTrac reported 352 new REO foreclosure filing, an increase of 228 from the 2014 total. During the first half of this year, new REO filing jumped to 539. Sullivan County accounted for most of them with 229 new filings. The only two local markets that saw a decrease in new filings were Bristol, VA and Washington Co. VA.

Since Tennessee is a non-judicial foreclosure state, new filings can move to the market faster. Can is the operative word. Some REOs are held off the market for more favorable conditions - a better price or faster sales. Local market conditions are prime for the REO fast-track. Sales volumes have increased at record paces since last summer.

While more foreclosures moving would boost the inventory situation, it's a good news, bad news situation.

Foreclosures are sold at a discount so they tend to depress the price of non-distressed sales command. However, foreclosure discounts decrease in direct proportion to sales volume health. Since local sales have increased and inventory is low foreclosures can command a higher price. That's one reason average sales prices have lagged the sales pace. That doesn't necessarily mean the value or sales price for homes is as soft as the averages indicate.

CoreLogic's Home Price Index (HPI) is a good balance to NETAR's Trends Report. While the Trends Report is a solid indicator of market activity based on sales of properties on the Multiple Listing Service, CoreLogic's HPI offers a broader market look. It's a repeat sales index based on public records instead of just the MLS, which accounts for 75% to 80% of the market.

That index shows year-over-year prices have improved for 14 straight months in the Kingsport-Bristol Metropolitan Statistical Area (MSA) and 40 months in the Johnson City MSA.

The major takeaway of the confusing local market supply and demand situation is it's critical that buyers and sellers arm themselves with the best and most current local market information. The best source for that information is local Realtors. They're the real pros when it comes to what's happening, what's working and what's not working in local housing markets.

Marsha Stowell is the 2016 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,100 local Realtor® members and almost 60 affiliates