Today and tomorrow, we’ll look at the real estate world form the two natural perspectives – that of the sellers and the buyers; but in reality this entire change in patterns can be traced back to the seller side and the chaos that has accompanied the housing market/mortgage meltdown. The changes in motivation for sellers (read that as being in distress and facing foreclosure) drove behaviors on that side of the real estate equation that naturally lead to the changes on the buyer side. Perhaps this is a classic example of supply-side economics at work in the real estate market.
The first chart shows the historic home seller distribution, i.e. what was driving the sale. The “Traditional/Retail” category includes all of the moving up, moving on or just moving reasons that people used to sell their homes, as well as the new home builds. For years and years that was over 90% of the market. Things like short sales and bank repos were almost unheard of and leases were a relatively small portion, too.
Now look at the seller side of the current market. Can you believe that the single largest category is Bank Owned – foreclosed houses – at 50%? Leases are now the second “sales” category, as more and more distressed home sellers turn to leases, rather than get nothing at all to help pay for the house. Many of these people are those who took a job somewhere else and then discovered that they couldn’t sell their current house for what they owe on it. They actually make up more than their share in the statistics, because they likely lease on the other end, too.
The traditional sales that most Realtors® have depended upon now tie with leases, followed by Short Sales, which is really a foreclosure (Bank Owned) precursor. So, really, distressed sales - those being made because the owners can't keep up with the payments anymore - represent 66% of all sales these days. Thanks how bad things have become. One could easily lump in the majority of the leases being done today (16% out of the 18%, if historic trends are accurate) and conclude that 82% of all "sales" being made these days involve a property and owners who are distressed and have been forced into those transactions.
A big issue for traditional Realtors is that banks have tended to list their foreclosed properties with the real estate equivalent of wholesalers – agents and companies that agree to take very little commission in exchange for a high volume of business. Quite a few of the "companies" involved are little more than quickie LLC's that were set up just to do this business and many are "lone-wolf) operations (one-man shows) or two clowns and some signs. Many of these operators are listing and managing (a loose term when used here) tens or even hundreds of REO (Real Estate Owned) properties for various banks and many, now-defunct mortgage companies. Some of them are as much a part of the problem as they are a part of the solution.
Fortunately for me and for our customers, Real Estate One has a complete division focused upon REO Management and another division (under Capital Title) that deals with short sales. Real Estate One is probably the only real estate company in Michigan that is large enough and that has the enlightened leadership and financial wherewithal to have operations like these in place. More and more banks are starting to see the folly of dealing with the little one-man-band operations that have had this business and are starting to entrust their REO properties to professional companies with real organizations in place to do the work, like Real Estate One. And many distressed sellers are opting for the professional approach of a Title Company division for help with short sales, rather than just handing their home over to "Slick Willie, the short sale guy."
The Current Market numbers are a little misleading, so far as the actual listed market is concerned. These number reflect what is actually selling, not what is listed for sale. In fact the majority of listings are still privately owned and being offered by the owners, and not a bank. Some of those “privately owned” homes likely fall into the distressed or short sale category in the chart above, but the majority are still homes that are being offered for regular sales. What the chart really shows is how hard it is to compete in this market, with so much attention from the buyers being turned to foreclosed and short sale homes. It is possible, of course, to sell a home that is not distressed or foreclosed, just a bit harder.
Tomorrow we’ll look at the buyer side of things – how has the makeup of the people actually buying homes these days changed; and, oh my, what a change that is too.
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