Short Sale Impact – Has It Been Felt Yet?

As I was doing some research for a potential listing client, I identified some interesting trends in the data I was compiling causing me to rethink the conventional wisdom related to short sale and REO (bank foreclosure) activity. Conventional thinking suggests the declining home prices are a result of increased short sale and bank foreclosure activity. However, at least in our local market here along the Wasatch Front, I am not sure we have seen the full impact of these distressed properties on the market.

Reviewing the data for both Davis and Salt Lake counties, I noticed that, as it relates to current active listings and current under contract listings, the percentage of short sales to standard listings is relatively consistent in the 11% to 16% range. However, there is a completely different story when looking at the percentage of short sales that actually closed in the same time frame. Short sales represent less than 4% of total closed sales over the last 12 months. On the surface this appears to indicate our market hasn't fully absorbed the impact of short sales (and by extension foreclosures) as reflected in average and median sales figures published routinely in the newspapers and local news media.

Average and median sale prices year-over-year have reflected only low single-digit decreases to date. As many agents know, active listings in the current market have seen repeated price reductions as demand has diminished; due not only to the economic and financial situation but also due to seasonality. There have also been significant delays by the banks in getting short sales approved and offers accepted. Many times, offers submitted on short sales are canceled as the buyers purchase other properties while waiting for the banks to make a decision. I know of delays as long as six months to get approvals with six to eight weeks very common.

Thus, we may not have seen the so-called ”bottom” of the market as many of these short sales (and other distressed properties) have not yet been fully accounted in the markets. The next several months should provide some very telling data points, especially if the banks begin to streamline their short sale approval processes and become more effective in getting their short sale properties under contract and sold.

This information may also be understating the impact of short sales and foreclosures as agents don’t always identify the property as a short sale in the MLS.

It will be important to watch upcoming data sets to determine actual trend lines heading into the summer. The combination of federal tax credits, the recently signed grant program for new construction, and the recent reduction in interest rates due to the federal reserve program to buy Treasury securities may begin to have significant impact on the housing market over the coming months.

Stay tuned…