Foreclosure sales dragging all real estate down...

The Associated Press reported in a story on December 2 the 10 states with the highest percentage of foreclosure sales:

· Nevada, 54 percent
· Arizona 47 percent
· California 40 percent
· Florida 37 percent
· Massachusetts, 35 percent
· Michigan 32 percent
· Georgia, 29 percent
· Oregon, 27 percent
· Idaho 25, percent
· Illinois 25, percent

They also reported that about 25% of all residential sales in Q3 were foreclosures. They didn’t report how many short sales were in the mix of residential sales, but if it tracks anywhere near our local market trends that would take the overall “distressed” portion of the market up considerably – perhaps as high as 35-40%. The market was also reported to be down both quarter to quarter for 2010 (Q12 to Q3 down 25%) and quarter vs. quarter against 2009 (31%).

There are no real surprises in this story; although, I’m pleasantly surprised to see that Michigan has dropped out of the top 5 foreclosure states. I’m a little surprised by the 32% that foreclosures make up of the market for Michigan overall, since the numbers in my little six-township market area have been consistently higher than that – averaging above 50% for the last 18 months – proof again that all real estate is local.

I haven’t done the math, so I can’t tell how much downward influence foreclosures are having on non-distressed homes; however, the howls coming from other agents about low appraisals killing deals is proof that the influence is considerable. I guess you can’t blame the appraisers for that. They are given instructions in their assignments about what to take into consideration when establishing values in communities and it’s pretty hard to ignore the 3-4 empty and/or foreclosed houses that seem to be in each neighborhood. Assessors are having a tough time too, since they are serving a master to whom they must continue to give bad news – home values, and with them tax receipts, continue to drop.

It’s interesting to me that every time I make a post like this I get feedback in the form of responses that things aren’t as bad here or there, usually from agents in states not on the list above. I have yet to hear from a Nevada or California agent telling me how much worse off I am than them. I actually have some difficulty imagining their situations, given the market that I’m facing. Now, I must quickly add that there are some markets in Michigan that are doing relatively well - Ann Arbor and Birmingham on this side of the state and much of the western side of the state seem to be in better shape.

I suspect that much of the problem that we are seeing locally is a manifestation of the old real estate saw – location, location, location. Some of our most depressed areas are in the farthest out suburbs – places where people seemed to be willing to drive to in better times, just to gain that little extra bit of “country” atmosphere. Now those places are “too far out” on the feedback forms as people focus more on getting to and from work. The locations out along major highway arteries are still doing OK, but if the location is 20-30 minutes off the main highway, “forget about it.” Or, so it seems.

So, where is the economic recovery that I hear about in nightly newscasts? I suspect that it’s on its way and has probably already arrived in some locations. It might take a while to reach us in this area. We still have a big pool of unemployed ex-workers from the automotive industry and a pretty big inventory overhang of foreclosed or distressed houses in the area. When the 2010 Census results are released, I would be surprised if Michigan hasn’t experienced a significant population reduction. That may mean that we have lots more housing stock that we need. I guess we’ll wait and see.