The unexpected drop in signed contracts to buy existing homes in April should have come as no surprise. It is all about price point, supply, and where the action is/has been. Depending on which survey you follow, sales of distressed properties (foreclosures and short sales), make up anywhere from a quarter to 40% of all home sales nationwide. The bulk of these sales are out west in cities like Phoenix, Las Vegas and much of Southern California. Real estate agents out west will tell you that supplies of these distressed properties are dropping fast, thanks to huge investor demand. That, in turn, led to a huge drop in sales of lower priced properties, as we reported last week, down 26% in the $0-100,000 price range, according to the National Association of Realtors (NAR). Now we see contracts to buy existing homes in April dropping 12% out west, far lower than sales in the northeast and mid-west, which were essentially flat.
The south, which includes troubled foreclosure states like Florida and Georgia, also saw a sizeable drop in pending sales of nearly 7%. Florida has plenty of foreclosures in process, but few are making it to the market, as Florida requires a judge in the process, and judicial state timelines are still far longer than non-judicial states.
“Aside from the inescapable month-to-month variability, the increasing problem is on the shortage of inventory,” admits Lawrence Yun, chief economist for the NAR. “Areas like Phoenix and Vegas, Orange Country, California are all reporting sharp reductions in inventory, and this is a problem because this is reducing the business transaction potential. So the demand is there, but if someone blinks they’re losing out on the contract signing.” Why is inventory so low? Because banks are trying to modify more loans as part of the recent $25 billion mortgage servicing settlement. States that require a judge in the foreclosure process are also taking far longer to get the properties out to the market. Approximately 1.4 million homes are currently in the foreclosure process, according to a report today from CoreLogic, with far more loans in some stage of delinquency.
Many of these properties will inevitably reach the sales market, probably in Q3 and Q4, and that will in turn boost low-end sales again, but that in turn could push slowly recovering home prices lower again
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