I’ve been writing about real estate every week for close to four years now and the market has had a dramatic transformation in that time. If you look back on many of my first articles you’ll see I spent a lot of time on things like the Making Homes Affordable Act (MHA), Home Affordable Modification Program (HAMP), Home Affordable Refinance Program (HARP), loan modifications, short sales, REO’s…you get the idea. So what has happened to all these programs and distressed ways of purchasing real estate? The programs still exist but some will sunset this year. You can still find short sales and REO’s although there are fewer and fewer.
2013 has seen the numbers of short sales go down dramatically after a surge in 2012. The surge might have been due to the fact that Home Affordable Foreclosure Alternatives (HAFA) was due to sunset December 2012, however it was extended to December 2013. Pre-foreclosures (which can be a short sale) hit a record high of 454,727 in 2012. Pre-Foreclosures saw a decrease of 20 percent in the first quarter of 2013 from the first quarter of 2012. In fact it’s the lowest quarter since the third quarter of 2009. For example in Orange Country, CA over the last three years on average every 1 in 4 sales has been a short sale, this year it’s down to 1 in 7, a 41 percent decrease.
Nationally, in May of 2012 short sales accounted for 25 percent of sales, whereas in May 2013 only 18 percent of total sales were short sales.
This is a national decrease; however there are some states that did experience increases: Washington up 76 percent, Illinois up 36 percent, Maryland up 35 percent and Pennsylvania up 15 percent.
So what is the future of short sales? Many of the programs such as, HAFA will be sunsetting at the end of this year. HAFA has simplified and streamlined the process of short sales with performance timeframes and standards of documentation. Leaders at the Treasury believe that these processes will remain in place even though the act will no longer be valid, because they have proven to be “best practices.”
A short sale happens because the loan on the property is larger than the sales price, less all expenses. When someone sells a property via short sale they are asking the bank to take less than the amount owed. Even though we are seeing an improving real estate market and price increases, there are still homeowners who are underwater (owe more than their home is worth). Many people not only leveraged their homes to 100% of the peak value but some even 110-125 percent. Some of these people are trying to wait out the market and hope their homes increase back to (or surpass) the pre-recession value. However they could face situations, such as a job loss, job transfer or divorce (to name a few) that would force them to sell at a loss. There is also the issue of interest rates, many of these buyers had variable rate loans and couldn’t refinance. They have been fine since interest rates have been low, but we see those changes coming.
In the Professional Real Estate Investor class we have always looked at pre-foreclosures (which a short sale is) and foreclosures as opportunities. These ways to buy real estate aren’t going to disappear as the market gets healthy but they will be harder to find. So if you are an investor looking for “a deal,” you might want to start looking at other strategies. If you drop into my classroom I will have a few suggestions for you.
Diana Hill – firstname.lastname@example.org