Goods News, Pre-Foreclosure Notices Set Record

In March, Valley pre-foreclosure notices (Notice of Default or NOD) set an all-time record. Through March 30th, 10,635 notices of trustee’s sale were sent out to distressed homeowners, which is a 25% increase over the preceding month of February. This is certainly not a good sign for the Phoenix housing market recovery but it might not be as bad as it sounds. Read on and I’ll explain…

To begin with, many banks had imposed moratoriums on foreclosures through the end of February of 2009. This was a two-fold plan that would allow delinquent homeowners to stay in their homes during the Holiday’s as well as better understand what kind of aid the new administration was going to provide for in those in need. When the President announced the Making Home Affordable plan, banks were given clearer guidelines on which homeowners would get help and which ones wouldn’t. The March spike in NODs most likely represents the peak of the Valley foreclosures in that the system is catching up with foreclosures that were on hold given the moratorium. I suspect that the number of NODs in April may be close to that of March but May and the following months will be lower.

Second, if you’ve been shopping for a home with the hopes of getting a bank owned bargain you’re probably noticing that there is some stiff competition in the market. It’s common these days for lender owned properties to receive multiple offers thus driving prices upward. Why is this? Currently, bank-owned home inventory is at an all-time low and Spring and Summer are traditionally the busiest months to buy. The result is a large number of hungry buyers with not as much inventory- thus a seller’s market for bank owned homes.

The good news is the March wave of NOD’s should replenish bank-owned inventories beginning in mid to late May. I suspect an increase in bank owned inventory in June and July which will begin to diminish in August. In addition, if we see the level of NODs begin to trend downward in May and June, the record breaking March peak in mortgage defaults could represent the last best opportunity to buy a foreclosure bargain. With the $8,000 home buyer tax credit, historically low interest rates, and housing affordability at a low not seen in recent years it’s one of the best times to buy a home.

Bank Owned Homes Selling Fast

Bank owned homes are selling fast. In real estate we talk about something called the absorption rate which is calculated by dividing the currently available homes, inventory, by the number of sales in the last 30 days (1 month). Think of it as a snap shot of the rate at which housing inventory is being sold. An absorption rate of 5-6 months is considered a balanced market, a rate below 5 months is considered a seller’s market, and a rate above 6 months is considered a buyer’s market.

As of today there are 6,424 bank owned single family detached homes listed as available on the MLS. In the last 30 days, 4,752 have sold giving an absorption rate of 1.35. What does this mean? If no new bank owned homes come on the market and sales continue at their current pace all the foreclosed homes listed for sale on the MLS will be sold in 41 days.

What is accounting for this rapid decrease in bank owned homes on the market? Hard to say for sure but I suspect it has to do with historically low interest rates and the $8,000 home buyer’s tax credit bringing buyer’s back into the market, investors snapping up properties, and some bank’s self imposed moratoriums on foreclosures. Not to mention that April through August is historically the time of year when more people buy homes so sales volume is usually high this time of year.

I wouldn’t venture to guess if this means we are at the bottom yet, but it is a good sign for the housing market.