Waiting for Foreclosures? Keep Waiting...
As always… this is my opinion. Many of you have heard me say my Crystal Ball is just as foggy as the next persons. Yes, I do spend my days and my professional career paying attention to these things, so I feel even my foggy crystal ball has some relevance. If you didn’t think so too, you probably wouldn’t be reading this.…
Since March, we’ve been getting a LOT of calls, texts, emails, carrier pigeon messages, telegrams, smoke signals and general yelling about waiting for the foreclosure waive to hit the Las Vegas market again. And I get the thought process. Lot of people out of work. Lot of unknown. Lot of people not making rental payments, etc.
Here are the facts. Yes, we have one of the, if not, highest unemployment numbers in the country. We know that. This is NEVER good. Ever. When times are good in the US, things are REALLY good here in Las Vegas. When times are tough in the country, we get hit really hard too. So, I will never say that unemployment will not create some negative pressure on the economy, and therefore, our housing market as well. However, keep in mind a couple things. The first and foremost is that many of the unemployed or under employed were not homeowners; they were renters. Secondly, and again, this is somewhat of a generalization, but much of the pressure for the unemployed is in a specific price point of homes; it won’t necessarily effect the entire market.
Many people see what has been happening and continue to go back in their minds to 2008-2010. But this, as I’ve mentioned in so many blogs during the past 6 months, is an entirely DIFFERENT market. Here are some of the major differences, at a brief glance.
HOME EQUITY
Equity in homes is higher than it was in 2008-2010. Leading up to the collapse, people were using their homes like checking accounts, pulling equity out to buy other homes, boats, toys, home improvements or generally to have cash to burn. Equity in homes this time around is SIGNIFICANTLY higher, with close to half of ALL homes in the United States having at least 50% equity. This means that even a downturn in the housing market means that equity is there. We may see some forced equity sales, but I don’t see a direct correlation to an increased number of Short Sales or Foreclosures. I just don’t.
FORBEARANCE
Many homeowners did go into forbearance, which is a fun term that basically gave homeowners some time to not pay their mortgages. People who anticipate the market collapsing are pointing to this stat. Again, I get it. However, every lender has different terms. Most are not doing a balloon payment, but simply adding the time in forbearance to the end of the loan, and maybe adjusting the payments slightly. Very few are actually giving borrowers only a year or so to repay the amount in forbearance. That’s the major difference.
SUPPLY + DEMAND
Another point is we simply do not have a lot of homes to sell. There are 40% less homes available right now compared to last year. That’s a huge number. Combine that with the demand we’ve seen with work from home and school from home lifestyles, and many buyers are realizing that home is their safe haven, and are even looking to increase the size of their home to offset the extra usage. Sprinkle in record low interest rates, and our Demand is far outweighing our supply, causing pricing to remain strong.
PRICE APPRECIATION
Look. We are up just under 10% for the year. That’s a lot. So, even if we dropped by 20% seemingly overnight, we would only be about 8% below where we were to start the year. Considering the amount of equity people have in their homes, this storm can be weathered. “But Geoff, the market could go down 50% like it did in 2008!” I don’t see that happening at all. Why would it? Remember, 2008 was about a decade of making bad loans to people that culminated in an historically bad period of time, where they all hit together. This is not that. This has never been that, nor should it be compared to that. Almost all home owners can weather a negative market storm, but even now, we are not seeing signs of this happening.
FORECLOSURES AS PART OF OUR MARKET
Short Sales and Foreclosures, which dominated our market for a few years, are almost NOTHING in our market these days. And everyone remembers the Foreclosure and Short Sale craze like it was yesterday, but the height of that craze was a DECADE AGO. There are currently 4494 Single Family Houses on the market that are NOT under contract. Of those close to 4500, a whopping 47 of them are either a Foreclosure or a Short Sale. That’s 1% of the available inventory. That’s it. In the last 6 months, there have been 200 closed sales of Foreclosures and Short Sales. During that same 6 month period, there were a total of 14,980 total Sales. So only 1.3% of all the sales in the last 6 months were Short Sales or Foreclosures. Once again, I do NOT see these numbers climbing to a point that they become statistically relevant.
EQUITY SALES > SHORT SALES
A short sale is the process when a homeowner owes more on the home than it’s worth. They need to sell it, and then the bank steps in and decides if they’ll allow it. There is nothing short about a short sale. But I don’t believe we’ll see a huge rise in short sales. Again, as mentioned above, we are sitting at historic levels of equity in homes. For those homeowners that are struggling, things are very tough, and they may have to sell the home. But guess what? The home is not ‘underwater’. The buyer is simply struggling with the payments. So I don’t see a situation where we have short sales, but we may see some equity sales at slightly below market value. Example. If a homeowner owns a property that’s value is $300,000, and they only owe $250,000, they have equity. If they now are in need of selling their home, they can do so. Rather than waiting the 7+ months and lose it in a foreclosure, and hurt their credit for 7 years, etc, the homeowner can simply sell their home for $295,000 quickly. Sure, they may not get top dollar, but are still going to be able to get close to asking price, and get it quickly. They get to walk away fro the property and hold on to their credit, etc. With interest rates as low as they are, and inventory levels historically low, these forced equity sales will still keep the pricing stable.
GENERAL TIMING ON FORECLOSURE
So, you have read all this, and you still say, “I’m waiting for the market to explode and buy a foreclosure or a short sale.” That’s fine. I’m never going to argue over your opinion. Ever. That’s not who I am. I may disagree with your opinion, but it’s yours, and you have the right. But let’s just talk about the timeline of a Foreclosure. It takes a lot longer than you think. Here is the timeline in Nevada for a home, and this is the FASTEST a Foreclosure sale can take place… so please keep that in mind.
Day 0 - A homeowner stops making payments on their mortgage
Day 91 - A Lender can officially file a Notice of Default on the property
Day 181 - A Lender can officially file the Notice of Trustee Sale on the property
Day 212 - The sale can commence
Again, this is the absolute fastest it can happen. Period. And just so you know, most of the time, it takes WAY, WAY longer. So 212 days is a bit more than 7 months. So if a homeowner stopped making payments now, the soonest that home could go to foreclosure would be the end of May, 2021! And if you plan on waiting to see that home hit the MLS to purchase, add another 30-45 days or more before the bank gets it on the market.
So, if we see a waive of foreclosures… my guess is it won’t be until Mid Q2 at the earliest. I can go on and on about this, but I wanted to get a few bullet points out to everyone. Always open to what your thoughts are.
