Minnesota Real Estate Investors Association, Inc.

Over the last few years we’ve been predicting records were going to be broken for years to come and that it would be a uniquely incredible environment for real estate investors. Today RealtyTrac issued a press release for the month of August that illustrates the fulfillment of this prediction in no uncertain terms.

Here are the key numbers to note:

• In August, 1 in 381 housing units received a foreclosure filing.
• RealtyTrac has seen 1.2 million repossessions so far in 2010.
• Before the housing bubble burst, in 2005 only 100,000 houses became REO’s.
• 95,364 property foreclosures in August, a historic record.
• An increase of 25% since the start of the 2010.
• In August, 96,469 homeowners receive a notice of default.
• 1% decline in the number of NOD’s filed in July.
• A 30% decline since August 2009 after a peak of 142,064 NOD’s issued in April 2009.

For a complete list of notable numbers you’ll find them all just above the comment section. Our initial prediction was that with the drastic turn in the economy. This would create a flood of opportunity for real estate investors based on the sheer volume of properties vulnerable to a declining economy. 

The numbers laid out in this release speaks volumes of what’s going on in the big picture. In understanding the big picture we have the opportunity to reverse engineer these trends in order shed light on our local markets. Being investors we always need to be mindful of market conditions themselves as they will dictate what we can and can’t offer.

There are some pretty telling numbers laid out by in this release, but Rick Sharga, Vice President of RealtyTrac, doesn’t mince words by saying,

“I don’t think it gets any better really until the end of 2013.”

It doesn’t take a rocket scientist to recognize that things are getting worse (unless you’re an investor, in which case is the exact opposite). But it does take some cajones to make a long term prediction to when things will get better.

However, the fact remains that we’re real estate investors and investors have their skills and understanding of the market, put them both to use, and generate a positive return.

Now let’s look at these numbers to get a sense of what’s going

Digging below the surface of the scale these records reflect there are two trends that stand out.

1. The rate of properties being taken back by the bank is increasing.
2. The rate in which Notice of Defaults are being is declining.

This may suggest that we’re reaching the bottom and things maybe turning around as the number of NOD’s and foreclosure filings that indicate the rate of origination for these troubled properties is winding down. But this simply isn’t case as Rick Sharga laments… but rather only the making of another twist in the housing saga called our market...

The Antagonists of the Housing Market

In any saga there comes a time where the protagonist looks back on what’s happened and then wonders what could have been. But for every saga there must be an antagonist to make things interesting and there have been 3 significant acts that have muddied up the waters… perhaps you can identify the antagonist.

1. Troubled Assets Relief Program aka “TARP”
2. Foreclosure Moratorium
3. First Time Homebuyer Tax Credit

We can only wonder what might have been, but in essence these were all nothing but short term stalling tactics used by the protagonist to buy them more time. TARP was meant to relieve pressure on the housing chunk of the finance market. The moratorium literally but a dam up in a river of foreclosures but was completely unsustainable, stall tactic?

Finally the First Time Home Owner Tax Credit comes in to shore up enough incentivized buyers to redirect the market upward. It only temporarily altered buying patterns and now that we find ourselves in record bank repossessions we can assume this isn’t what the antagonist had in mind.

But these are pretty much old news, except for the fact that the effects of these acts have been adjusted for by the market to create the current list of statistics. So what gives?

You Didn’t Think a Saga of this Magnitude had only 1 Antagonist did you?

When it comes to taking back a property it is up to the bank to file (unless there’s a moratorium) and even though the number of REO’s is breaking records time-and-again it sure doesn’t seem that way in the field. If you’ve noticed this when you’re checking the daily list of REO’s on the MLS and have experienced the same bewilderment you are not alone.

In What is the Real Estate Shadow Inventory I covered a topic that continues to gain attention, and rightfully so! Shadow inventory is the perpetration of antagonist #2 and this is their concern:

1. The buyer pool is too soft.
2. Softer the buyer pool then longer it takes to clear “distressed inventory.”
3. Longer it takes to clear the greater price pressure there is on the overall market.
4. An increase in price pressure increases the number of underwater properties in the market.
5. The more homes that are underwater correlates directly to the number of homes in danger of foreclosure.

To add one more point based on the Notice of Default trend is that there they are attempting to stem the tide into the pre-foreclosure pool. So not only are banks unsustainably holding REO shadow inventory, but now they are now widening the schism by shadowing the foreclosure process which is cuts into our pool of motivated sellers.

Point here is that the efforts of the antagonists to the housing saga will continue and the plot can only thicken as their unsustainable efforts erode. A knot has been created and we, as the protagonists, are the only ones micro enough with the skill sets to solve these problems. Locally we invest and work to remove all of the pins, one-by-one, that continue to hold down our big picture.

Appendx: Key Indicators

• In August, 1 in 381 housing units received a foreclosure filing.
• RealtyTrac has seen 1.2 million repossessions so far in 2010.
• 2009 saw just under 1 million repossessions.
• Before the housing bubble burst, in 2005 only 100,000 houses became REO’s.
• 95,364 property foreclosures in August, a historic record.
• 2% increase over May’s record of foreclosures.
• As well as a 3% increase over July foreclosures.
• An increase of 25% since the start of the 2010.
• In August, 96,469 homeowners receive a notice of default.
• 1% decline in the number of NOD’s filed in July.
• A 30% decline since August 2009 after a peak of 142,064 NOD’s issued in April 2009.
• Total foreclosure actions totaled 338,836 in August.
• An increase of 4% from July.
• Down 5% from August 2009.
• Auctions that were newly scheduled numbered 147,000 properties in August.
• Up 9% from July and the 2nd highest total since April 2005.

Let’s discuss this because it is only the tip of the iceberg... “What do these numbers tell you?“ “What’s your REO market like?” “What do you see happening next?”