three patterns of distress in northeast real estate markets

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REO Trends

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Quick Market Overview

Three Regional Distressed Trends

Finding Best Deals in Any Market

Real Estate Red Flags

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U.S. Home SalesU.S. Home Sales

Nationwide August home sales at 4.8 million annualized pace, down a half-percent from July and down 16 percent from a year ago.

• Fourth consecutive month with a year-over-year decrease in U.S. sales volume

• Lowest annualized pace since January 2012

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• Median home price nationwide at $195,000, up 3 percent from July and up 15 percent from year ago.

• 29th consecutive month where U.S. median home price has increased from a year ago

• Highest level since August 2008 – a six-year high.

U.S. Home PricesU.S. Home Prices

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• Overall sales of home priced $500,000 or more are up 23 percent from year ago as a share of all sales.

• But remember we’re talking about a bigger share of a smaller overall pie.

U.S. Home PricesU.S. Home Prices

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• Majority of markets are where median home price is close to or below $200,000.

• Many of these markets are also hot spots for institutional investors buying up thousands of single family homes as rentals.

Local Market PricesLocal Market Prices

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• These are markets behaving rationally, returning to single-digit appreciation that is sustainable for the longer term.

• Good news is that this indicates another bubble is not forming.

• Bad news: the other “B” word, a return to a boring market.

Local Market PricesLocal Market Prices

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• Median list price of $219,900, down 4 percent from previous month but up 2 percent from Aug 2013.

• 17 consecutive months of annual increases in prices.

• Coming off 38-month high of $239,000 in June 2014.

• 2 percent annual appreciation in August 2014 compares to 17 percent annual appreciation in August 2013.

ConnecticutConnecticut

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• Median list price of $325,000 in Aug. 2014, down 1 percent from previous month but up 7 percent from year ago.

• 21 consecutive months of year-over-year increases in home prices.

• 51-month high hit in June 2014.

• 7 percent annual increase in Aug 2014 compares to 24 percent annual increase in Aug 2013

Mass.Mass.

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• Median list price of $169,995 in Aug 2014, down 3 percent from previous month but up 3 percent from Aug 2013.

• Fifth consecutive month of annual increase in home prices.

• Hit 50-month high in June 2014.

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• Median sales price of $385,000 in Aug 2014, up 4 percent from previous month and flat from Aug 2013.

• 16 consecutive months of flat or increasing prices on annual basis.

• Hit 69-month high of $390,000 in Sept 2013.

New YorkNew York

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• Median list price of $239,000 in Aug 2014, down 2 percent from previous month but up 4 percent from year ago.

• 20 consecutive months of year-over-year increases in home prices.

• Hit 50-month high of $245,000 in June 2014.

• 4 percent annual increase in Aug 2014 compares to 21 percent annual increase in Aug 2013

R.I.R.I.

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Scheduled foreclosure auctions nationwide increased annually in August after 44 consecutive months of decreases.

U.S. Foreclosure ActivityU.S. Foreclosure Activity

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Increasing auctions impacting Connecticut, New York, New Jersey, Maryland.

U.S. Foreclosure ActivityU.S. Foreclosure Activity

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REOs Returning to Normal

REOs Rebounding

REOs Repressed

3 Regional REO Trends3 Regional REO Trends

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REOs Returning to NormalREOs Returning to Normal

REO activity YTD in 2014 is at or below levels from 2006 before housing bubble burst

No legislative or legal intervention creating backlog of deferred REOs

Foreclosure timeline on the decline or flat

Low risk of another surge in REOs from negative equity, NPL sales or other

Includes markets in MI, TX, GA

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• 2014 REOs at 25 percent below pre-bubble norm of 169 per month.

ReturningReturning

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Still rising average time to foreclose a bit of a concern for Pittsburgh being fully back to normal.

ReturningReturning

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• Another concern is huge uptick in foreclosure starts two years ago.

• But given the average time to foreclose is less than two years in Pennsylvania this is a dwindling concern.

ReturningReturning

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• NPL sales is another metric that could signify deferred foreclosures down the road.

• Pennsylvania had the 10th most FHA NPL sales in 2013.

ReturningReturning

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REOs Rebounding: Atlantic CityREOs Rebounding: Atlantic City

REO activity YTD in 2014 above 2013

Most likely legislative or legal intervention created an REO backlog now hitting market

Foreclosure timeline high, often rising

Includes markets in NY, MD, OR, CT, NJ

Rebound is temporary, but temporary can mean multiple years

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• REO activity has increased from previous year for three consecutive years.

• 50 percent increase from 2013 to 2014.

• Still 33 percent below previous peak in 2010.

ReboundingRebounding

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• New Jersey has longest average time to foreclose of any state nationwide.

• Average time to foreclosure up 5 percent from year ago, up 242 percent from 2007.

• Foreclosure moratorium in 2011, foreclosure mediation legislation and recent change to requirement for

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• Atlantic City foreclosure starts have increased on a year-over-year basis in 29 out of the last 32 months.

• Foreclosure starts increased 52 percent from a year ago in September.

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• New Jersey had the second most NPL sales by the FHA of any state in 2013, second only to Florida.

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REOs Repressed: BostonREOs Repressed: Boston

REO activity YTD in 2014 below 2013 and 2012 levels but often above 2006 levels

Most likely legislative or legal intervention created artificial drop in REOs

No long-term rebound in REO yet but may be signs of recent increase

Foreclosure timeline high, often rising

Includes markets in CA, NV, FL, MA, IL

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• 2014 REO activity down 30 percent from 2013.

• Still well above 2006 levels and not far below 2007 levels.

RepressedRepressed

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• Massachusetts had seventh highest average time to foreclose in third quarter.

• Average time to foreclose is up 18 percent from a year ago.

• Court rulings over the past several years impacting the foreclosure process along with 2012 legislation to prevent foreclosures have contributed to the lengthening process.

RepressedRepressed

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• Seven consecutive months ending in September of year-over-year increases in foreclosure starts.

• Another surge in foreclosure starts in 2012 foreshadows an imminent surge in REOs given the average time to foreclose is about two years in Massachusetts.

RepressedRepressed

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• Massachusetts 2013 FHA NPL sales were the 18th highest in the country.

RepressedRepressed

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Best and Worst Deals Nationally

Best and Worst Deals Regionally

Foreclosure Deal Heat Matrix

Using Data to find DealsUsing Data to find Deals

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• Most of the best deal profiles are either properties in default or scheduled for auction.

• Most are vacant

• Most have negative equity

Best DealsBest Deals

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• Somewhat surprisingly REOs often sell at a premium rather than a discount.

• Properties in default that are underwater (typically short sales) are no longer good deals. Although properties in default with positive equity are.

• Top group is control group that is not in any form of distress that we know of.

Click icon to add picture

Worst DealsWorst Deals

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Best and Worst Deals Regionally

Property Profile U.S. Connecticut Massachusetts New Jersey New York PennsylvaniaDiscount/Premium=Avg Pct Below Market Compared to Control Discount/Premium Discount/Premium Discount/Premium Discount/Premium Discount/Premium Discount/PremiumAuction + Negative Equity + Vacant + 1950< Effective Year Built>1990 -28.2% 0.0% 0.0% 0.0% 0.0% -13.6%Default + Positive Equity -26.0% -13.7% -25.6% -17.7% -15.3% -24.1%Default + Negative Equity + Vacant + Effective Year Built<=1950 -25.8% -13.5% -14.4% -20.2% -12.5% -15.5%Auction + Negative Equity +Vacant -24.7% -12.3% -13.2% -30.4% -38.5% -23.8%Auction + Vacant -24.6% -12.2% -13.1% -26.3% -35.1% -25.9%Auction + Negative Equity + Vacant + Effective Year Built<=1950 -23.8% -11.5% -12.4% -30.4% -16.8% -24.4%Auction + Negative Equity + Vacant + Effective Year Built>=1990 -23.6% 0.0% -12.2% 0.0% 0.0% -9.1%Auction + Positive Equity -23.6% -11.3% -35.7% -17.6% -36.6% -31.1%Default -23.3% -32.5% -26.5% -19.3% -17.4% -21.6%Default + Negative Equity + Vacant + 1950< Effective Year Built<1990 -22.4% 0.0% -10.9% 0.0% -15.3% -7.8%Default + Negative Equity -20.9% -8.6% -27.7% -21.1% -22.6% -17.4%Auction -20.5% -8.2% -34.5% -22.0% -36.9% -28.0%Default + Vacant -20.2% -7.8% -18.3% -18.3% 4.7% -21.2%REO + Vacant -18.2% 0.0% -18.2% -5.1% -11.1% -3.6%Auction + Negative Equity -16.8% -4.5% -5.3% -27.0% -38.1% -21.7%Default + Negative Equity +Vacant -16.4% -4.1% -4.9% -20.1% -12.6% -15.5%Control+ Positive Equity -7.6% -3.0% -3.9% -1.4% -2.1% -5.9%REO + Effective Year Built>=1990 -6.3% 6.0% 1.2% 0.0% 0.8% 8.3%REO + 1950< Effective Year Built<1990 -1.7% -1.8% 1.3% 11.4% -27.2% -10.2%Default + Negative Equity + Vacant + Effective Year Built>=1990 1.9% 0.0% 13.3% 15.0% 8.9% 16.5%REO 2.5% 2.1% 2.5% -9.2% -12.1% -10.2%REO + Effective Year Built<=1950 6.7% 2.4% 2.5% -9.2% -11.9% -10.3%Control+Negative Equity 19.2% 8.1% 13.3% 5.8% 14.4% 19.4%

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NPL Sales

Affordability

Cash and Institutional Investors

HELOCs and HAMP Loan Mods

Real Estate Red FlagsReal Estate Red Flags

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NPL Sales

More than 70,000 NPLs sold by FHA

alone between 2010 and 2013

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NPL Sales

Backed by properties worth a cumulative

$9.6 billion

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Opposite Directions

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NPLs delaying foreclosure?

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NPLs delaying foreclosure?

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• 34 percent of nearly 1,200 counties analyzed had exceeded affordability “norms” in the second quarter.

• No counties had exceeded affordability levels seen during the housing bubble.

• Average affordability level for all counties over last 14 years was 19 percent of median income needed to buy median priced home.

AffordabilityAffordability

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• Nationwide students with student loan debt need to make 34 percent more income to afford a median-priced house.

• In Orange County student loan debt reduces buying power by only 8 percent.

• Bad news is that that median income in Orange County is less than minimum income needed to buy a median priced home – with or without student loan debt (based on max 43 percent of income spent on housing).

Student Loan ImpactStudent Loan Impact

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• Coming down after spike at the end of last year/beginning of this year.

• U.S. at 38 percent compared to long-term average of 32 percent (back to January 2001.

• California at 28 percent and Orange County at 27 percent compared to long-term state average of 25 percent.

Cash SalesCash Sales

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• Also coming down after spike late last year in OC.

• U.S. at 4.7 percent compared to long-term average of 3.1 percent (since Jan 2001).

• California at 1.8 percent and Orange County at 0.6 percent compared to state long-term average of 2.4 percent.

Institutional InvestorsInstitutional Investors

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• Still more than 8 million homeowners seriously underwater.

• Down to 15 percent of all homes with a mortgage from 29 percent at peak of negative equity in second quarter 2012

Home EquityHome Equity

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• Highest underwater percentages on loans originated in 2004 to 2008.

Home EquityHome Equity

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Other Risks• HELOCs

• 16 million outstanding• $79 billion coming due in next few years

• Resetting HAMP loan mods• More than 775,000 coming to end of

government subsidized period this year• Typical increase expected to be $197 for

monthly payments

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ResourcesLocal market stats and trends down to county, city, zip level: http://www.realtytrac.com/statsandtrends

RealtyTrac market reports: www.realtytrac.com/content

Download mailing lists of homeowners in foreclosure and other likely sellers: http://mega.realtytrac.com/

RealtyTrac Premium Subscription

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Thank You!Daren Blomquist

darenb@realtytrac.com

three patterns of distress in northeast real estate markets

renwood realtytrac llc

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