Based on information from the latest REALTORS® Confidence Index survey, 24 percent of respondents reported selling distressed property (foreclosed and short sales), down substantially from what had been the case a year or two ago. Cash sales accounted for roughly 40 percent of distressed sales (39 percent in August 2012).
What Does This Mean for REALTORS®? The shadow inventory, consisting of properties with mortgages about to enter default, has been mentioned in recent years as a major concern. In fact, availability of inventory available for sale — both distressed and non-distressed — continues to be limited, and distressed sales are declining. Inventories of homes for sale have declined to the 6-month level and in some areas are significantly less. The measured pace of the release of distressed properties to the market has bolstered housing prices.
Thinking, Fast and Slow is a book written by a psychologist who won a Nobel Prize in Economics several years back. Daniel Kahneman, the author, pokes at the basic economists’ assumption that people make rational calculations before deciding.
His idea is that all of us have two brains: calculating and impulsive. The “impulsive” reasoning is developed over years of unique personal experiences to help reduce the cost of mental calculation. But the impulsive decision, though less taxing on the brain, could lead to misjudgment at times.
According to the July REALTORS® Confidence Index report (RCI), twenty-four percent of respondents reported selling distressed property (foreclosed and short sales), lower than last year’s figure of 31 percent. Cash sales accounted for 39 percent of distressed sales. Respondents reported multi-bidding on foreclosed and short sale properties and also experiencing a frustrating lending and appraisal process.
The full July RCI report is available here.
Distressed declined to 25 percent of total sales according to the May Realtors® Confidence Index. About 44 percent of distressed sales were for cash over the past year.
Distressed sales go through several stages—the initial overdue status for mortgage payments, the actual foreclosure by the financial institution unless sold in a short sale, and the final sale of the property, frequently by Realtors® through the MLS. Currently Realtors® in a number of markets are reporting shortages of inventories of distressed real estate: the markets are clearing distressed properties from the market at a rapid rate.
The Existing Home Sales market is bifurcated, with distressed properties frequently being sold at significant discounts to market, frequently in subpar condition when going to market, and reported to be popular with investors seeking bargain prices. Investors pay cash in 69 percent of their overall purchases of properties (both distressed and non-distressed), in comparison to first-time buyers who overall pay cash in 11 percent of their purchases. In the case of distressed properties with a seller who would like to close a transaction without waiting for the buyer to obtain a mortgage, an investor may be a preferable buyer. We have received many reports of investors obtaining a property even when a first-time prospective buyer has offered a higher price.
By Gay Cororaton
The May Realtors® Confidence Index reports that the percentage of cash sales declined to 28 percent in May, from 29 percent in April for residential properties. The high preponderance of all-cash sales appears to be due to a number of factors: unrealistically high loan underwriting standards, a significant level of investor participation in the market, and sales of properties as second homes.