Are Short Sales an Illusion?
Lauren Beale of L.A. Land over at the L.A. Times blogged recently about an interesting finding buried way down in the recent UCLA Anderson Forecast on the California economy — that short sales, despite how many there are on the market right now, are really a false barometer of current market values because they aren’t selling. Banks are simply not moving fast enough to make these realistic opportunities — what buyer wants to wait 2 months to find out if their offer was accepted? So they sit on the MLS listings and give an unrealistic view of what buyers should expect to pay. Here’s an excerpt (the “he” is Ryan Ratcliff, forecast scholar and assistant professor at the University of San Diego):
An admittedly imperfect parsing of 2008 MLS data for San Diego County supported (this) observation: short sales accounted for 36% of listings but only 12% of sales. “The short sale listing and its attractive price were essentially just an illusion,” he writes.
The home shopper-economist also found that the time between listing and closing was almost six weeks longer for a short sale and that such listings are largely in the bottom half of the home price spectrum.
As short sales relate to the question of a housing rebound, he concludes, that they “have temporarily hijacked the market mechanism” and that “the near-term course of the housing market will be determined more by the procedural timelines of foreclosures and short sale approvals than any notions of a magic price that will clear existing inventory.”
Here’s some local (90039) short sales and foreclosures. Another thing I’m really noticing is that in the better areas (like Silver Lake and Los Feliz), the high-end houses aren’t in default. I’m seeing more low-end, starter homes in questionable locations that are falling into trouble. I think there are deals out there, but fewer that recent news accounts would have buyers believe.
- 2706 Newell St: This 1/.75 with 598 is a short-sale, listed at $392,000. But that’s still $656 a square foot!
- 3465 Perlita: This Atwater 2/2 has 1,285 square feet and is bank-owned.
- 3837 Brunswick: A2/1 with 1,128 square feet, another REO for $415,500.
Christopher Hain said:
Your observation “the high-end houses aren’t in default. I’m seeing more low-end, starter homes in questionable locations that are falling into trouble” is right on the money. Nice areas of Santa Monica, for example, are seeing virtually no foreclosures.
http://terrafirmala.com/2008/09/best-and-worst-foreclosure-areas-in.html
September 28, 2008 8:16 PM
John Remeke said:
Banks do not want to offload so they would not realize loss and they want to offload the properties on a higher than realistic value to an entity that they are looking for at this time. I think that all know the story and the tax payer is expected to carry these losses at the end.
September 29, 2008 12:41 AM
Linda Nikkhoo said:
Professor Ratcliff is correct that short sales are merely an illusion. They are the tool that realtors use to reel in prospective buyers, then expect the buyers to make an offer on a value that keeps changing. Like trying to hit a moving target. Personally, I believe that the short sale concept is a sham, that should be banned from the practice of real estate. The process serves no useful purpose for either the seller or the buyer, and often frustrate the lender who is trying to liquidate the asset to get the money owed on a property.
Whomever came up with this idea, should be investigated for fraud. The listed price is allegedly at or below market. However, when the lienholder on the property reviews the offer, it’s rejected as too low 95% of the time. This would explain why there are many listed short sales, but few actual completed transactions.
Since the short sale process is a myth, the practice should be banned. The criteria for short sale qualification is very stringent, and it appears that many properties are listed as such, when in fact the sellers have not met the criteria or are waiting for their lender to approve their sale. Most of the short sales out there, fail in practice, and revert back to the lender anyway.
For my dollar, I’m looking at REOs only and will not waste my time or resources with mythical sales tactics. The short sale is the unicorn of real estate. Nice to fantasize about, but nonexistent.
September 29, 2008 1:04 PM