As the number of sales for June 2009 come in it is obvious the price homes sell for is less than a year ago and about 20% less than two years ago. Sales volume was low comparatively speaking, but much higher than I would have thought. The surprise was the number of foreclosures were neck and neck with the number of closed sales.
In the Wall Street Journal there was an article last week about the correlation between declining or negative equity and people walking away from a mortgage. From thier poll 47% of people who walked away had no or negative equity in the home. In the same week Bank of America anounced it has put into thier short sale addendum that the bank will want to collect defeciencies. The difference between what a bank is owed and what a bank collects in a foreclosure has no recourse in the State of Washington, from what I understand. Second Mortgages are a different thing.
I can see that the banks want to make people pay the mortgages. It makes sense that the more money banks take in on interest payments the less of a loss they will take when they eventually sell the property. The fact is that as prices decline people will be less inclined to pay for an asset that is worth much less than what they paid or borrowed. The lower prices will continue to work through the Real Estate market and in my opinion that will happen more rapidly this next year.
There is a sub section of the Real Estate market after the foreclosure auction called Real Estate Owned, or Bank Owned properties. From what I have heard out of 1600 home sales in King County in June 253 were bank owned. That may be short sales and REOs combined, I don’t really keep track, but the per cent to closed sales is pretty high. Like with the foreclosure auctions there is a limited number of people in that buyer pool. Banks are notorious for letting properties go vacant for extended periods. It takes some imagination to get a buyer to look at REOs. Those properties tend to sell at a discount.
Each year a certain number of people have to move. As those buyers work through the process they generate a new set of statistics used for Comparative Market Analysis. Those number will show a lower over all sales price. At the same set of statistics the price per square foot went up. That was do to the number of smaller houses being sold this year. The below $500K market was the driving force and a lot of houses below 1200 square feet were sold. Smaller houses have a higher price per square foor than houses over 2600 square feet. It’s a market equalizer.
The trend is unmistakable. The market dynamics are like a car rolling down hill. Banks continue to collect foreclosed properties. Banks selling at a discount to a shrinking buyer pool. Home owners who are trying to collect equity before it’s gone selling at a discount to compete with banks. The process may be slow, but it will pick up speed.
The thing to watch will be rents. Rent trends will show us where the price of property will end up. Mortgage payments compared to what you can rent a similar property for will determine the market mind set. Is owning worth it? Is the cost of taxes, insurance, and maintaining, worth the claim that some day the property will be paid off?
