patrick.net

First, what area you're looking for and talking about?

If you exclude sales in Montana, there are no sales in Montana.

If you exclude homes with more than 4 bedrooms, only smaller houses are selling.

What is with this arbitrary exclusion of distressed sales? Even more alarming, the various legislative proposals to force mortgage appraisers to exclude distressed sales in arriving at their valuations. These appraisals exist to protect the lender from lending too much and the borrower from overpaying/borrowing too much. If the lender needs to foreclose, the sale will be distressed. They should actually excluded NON-DISTRESSED sales.

"If you exclude everything that ruins our graph, then prices are flat or increasing."

"What is with this arbitrary exclusion of distressed sales?"

Because distressed houses, specifically foreclosures, are usually in horrible condition and not comparable to a regular house. And foreclosures usually sell for lower prices since they are rarely openly listed, but instead get bought up by well connected investors and realtors. Unless you have an inside cnnection, it is very hard to buy a decent foreclosure.

distressed properties make up 2/3s of the bay area homes solds.

i conclude, since they are the majority, they can't be as horrible as you claim (after all most buyers are buying distressed).

since distressed sales are the majority, it's easier to claim the distressed market, is the market, not the other way around. then you could further claim, that you should only look at distressed prices and ignore non-distressed prices. but i doubt you would agree because that sounds silly, sort of like you saying only looking at non-distressed prices seems silly to me.

Princess says

Coogan99 says

What is with this arbitrary exclusion of distressed sales?

It’s an attempt at wealth redistribution, from young and relatively poor buyers, to old and relatively rich sellers. It’s using government to interfere in the market for the benefit of a politically powerful group.
Because it’s a wealth redistribution UPWARD, there are no complaints from Republicans. They love wealth redistribution upward. They complain only about wealth redistribution downward.

You had me 100% until you started to lay blame on the republicans.

This bubble and correction has been going on with republican/democrat presidents and congress so there really is not much difference in which party is sitting in the drivers seat. They both are only interested in saying anything to get re-elected and doing anything to enrich themselves.

Because it’s a wealth redistribution UPWARD, there are no complaints from Republicans. They love wealth redistribution upward. They complain only about wealth redistribution downward.

Sheesh. You were doing so well until you crashed at the finish line.

in our neighborhood they are declining, slowly though. There is a lot of effort keeping them afloat. I don't see that price lasting, you can't get someone with income of 50 a year to buy a 599 property.

"if you EXCLUDE distressed sales prices"

In any market you will see distressed sales, why would one exclude a sale of stock from a seller, who purchased say Google at $650-700/share and is a selling at $350-450/share today. Why would it be any different in the RE market ?

Whats the point of excluding any sales and calling them distressed ?

Declining prices ...

See for yourself... very much still declining.

http://www.dqnews.com/Articles/2011/News/California/Bay-Area/RRBay110615.aspx

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

HousingWatcher says

I keep hearing from other sources like CoreLogic that if you EXCLUDE distressed sales prices are either flat or increasing.

I wrote on this earlier with respect to the Bay Area, and provided a link to the report, so people would probably be better off commenting there:

http://patrick.net/?p=780025

Prices are certainly still declining in my neck of the woods.

If sellers have to lower their prices into short-sale territory in order to attract buyers, should then the sale be considered distressed and therefore "excluded" from data on the price buyers are willing to pay?

I don't see prices declining in my area that much. My next door neighbor's house is lsited for about $100,000 more than what I paid. Another house just sold for 50% more than its 2002 sale price.

HousingWatcher says

Another house just sold for 50% more than its 2002 sale price.

"There is a sucker born every minute"
- WC Fields

HousingWatcher says

Another house just sold for 50% more than its 2002 sale price.

What house and what city? Was it remodeled in between?

Prices in our east bay neighborhood have fallen but they are falling slowly. That said- they are still stubbornly high- as in probably 450-500k for anything that isn't a POS.

go on your local MLS, and every weekend, drive around, check out houses, do that for 2 months or so, you will get your answer much better than asking "i heard..." or asking "is it a mirage"

Foreclosures/distressed sales approximate the closest thing to organic price discovery in this junked-up market. Exclude them, and you distort the picture, not the other way around.

HousingWatcher says

So even though the Case SHiller keeps showing price declines, I keep hearing from other sources like CoreLogic that if you EXCLUDE distressed sales prices are either flat or increasing. So are prices still declining or is it just a mirage?

Yes, if you exclude part of the data, the results will be different. If we only count more expensive houses and exclude less expensive houses, then we will get a higher result. Is there a point to this?

gameisrigged says

Yes, if you exclude part of the data, the results will be different. If we only count more expensive houses and exclude less expensive houses, then we will get a higher result. Is there a point to this?

Of course there's a point. In general, foreclosures are likely to be in poor shape and not well cared for. Additionally, they are often as-is, sometimes not even allowing inspections. As such, buyers have to account for this additional risk by offering less.

What Corelogic is saying is the market is flat when taking into account this additional risk. Otherwise, the foreclosures would be driving down the price of the organic sales too as they are in direct competition with them. Since organic prices seem to be flat, that means the price difference is pretty much explained by the additional risk.

@Shrekgrinch

I agree with you this time.

They seem to be dropping in Maryland, but you would never know that from reading the news.

tatupu70 says

In general, foreclosures are likely to be in poor shape and not well cared for.

Like this one...

http://www.redfin.com/CA/Saratoga/12600-Radoyka-Dr-95070/home/806071

or this

http://www.redfin.com/CA/Los-Gatos/119-University-Ave-95030/home/653647

or this built in 2006...

http://www.redfin.com/CA/San-Jose/5096-Graves-Ave-95129/home/2125507

This is true:

HousingWatcher says

foreclosures usually sell for lower prices since they are rarely openly listed, but instead get bought up by well connected investors and realtors. Unless you have an inside cnnection, it is very hard to buy a decent foreclosure.

This is not:

HousingWatcher says

distressed houses, specifically foreclosures, are usually in horrible condition and not comparable to a regular house.

Plus foreclosures are not all of distressed sales. They also include Short Sales, which are by law required to be owner-occupied to be approved. Most people don't trash the home they still live in when they are actively trying to cooperate in transferring the property to someone else. Pissed off and bitter owners do that when the home is being wrested from their control involuntarily.

The part about excluding them from consideration (appraisers) is complete horseshit. They want to do this because realtors and "investors" are basically stealing F/Cs and Short Sales by not listing them, finding out the minimum proceeds required for approval by the investor, then selling them to a friend, who then flips it and splits the profits with the agent. They want that flip sale to be appraised at "real" market values so the appraiser will ignore the fact that they just purchased it for 70% of what they are now listing it for, and don't want the naive buyer knowing that they could have gotten it much lower had they only been an unscrupulous fuck with shady realtor friends.

Basically they want these marginally legal transacitons off the books, so they can hide them from the buyers who intend to occupy the property, in the same way Sears doesn't want you to know what they paid wholesale for the merchandise you are going to buy from them at retail. The whole thing is another goddamned scam.

Schizlor says

This is true:
HousingWatcher says
foreclosures usually sell for lower prices since they are rarely openly listed, but instead get bought up by well connected investors and realtors. Unless you have an inside cnnection, it is very hard to buy a decent foreclosure.

How is that any different than pocket listings..

http://en.wikipedia.org/wiki/Pocket_listing

A broker or agent having a Pocket Listing can sometimes imply that the property will be sold directly to a buyer by the seller's agent

Schizlor says

They also include Short Sales, which are by law required to be owner-occupied to be approved. Most people don’t trash the home they still live in when they are actively trying to cooperate in transferring the property to someone else. Pissed off and bitter owners do that when the home is being wrested from their control involuntarily.

What % of listed short sales actually result in a sale? The number is probably so small as to have a negligible effect on the statistics. Distressed sales = foreclosures. And despite the 3 listings from Thomas, I think it's fair to say that they are called "distressed" for a reason.

We certainly had "distressed" sales, as call it today, in the past.. see 1989 to late 90s. You bought and sold or foreclosed and took your lumps from the losses. No one was excluding foreclosure sales back than.

Needless to say the sales prices were what they were.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

thomas.wong1986 says

We certainly had “distressed” sales, as call it today, in the past.. see 1989 to late 90s. You bought and sold or foreclosed and took your lumps from the losses. No one was excluding foreclosure sales back than.
Needless to say the sales prices were what they were.
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

Becuase there weren't enough of them to skew the numbers like they do now.

thomas.wong1986 says

How is that any different than pocket listings..

The difference there is that a pocket listing is an agreement entered into between the broker and seller, whereby the seller agrees or insists the property not be listed on MLS. (It is the sellers choice, they initiated it with a signed agreement, and are aware of the limitations of marketing in this manner)

What happens a lot with the distressed sales is that the agent will keep a seller in the dark, and often the seller is desperate (they don't care who buys it, or for how much, they just want to be relieved of the mortgage debt) Since the agent knows they couldn't care less who buys it or for how much, they line up an "investor" (friend) and tell the borrower "We have an offer!". Seller says great, they submit for a short sale, get it approved, and the seller walks away clean. Then the agent actually lists the property far above the SS price, and flips it. Not only do they get the profits from the flip (split w/ investor somehow) but they also earn commission on the SS sale and the flip sale, so at minimum they get a full 6% total, and if they are the agent for buyer and seller (likely during the SS as the "investor" is their friend), they clear 9-12% commission in addition to the money skimmed off the flip. Rape and pilage.

In the end it really doesn't matter to the seller one way or the other (they lose nothing, as they only hope to be exonorated from the original mortgage debt, which happens regardless of who buys it and for how much) but it completely screws the lender and enriches the agents enormously. Whether or not this is fully illegal or just murky on the ethical end is not completely clear to me, but the suggestion that appraisers should be forced by legislation to ignore these transactions seems designed solely to widen the gap between the appraised value of the short sale, and the appraisal done when they go to flip it, so that the profits and commission from the 2nd sale will be far higher than if the appraiser just actually did their job correctly and valued the property based on all market factors, distressed sales included. It is an outrageous proposal.

I would interpret "if you exclude distressed sales prices" as meaing either "the market is so bad that most sales are distressed" or "CoreLogic defines any sale for a loss as a distressed sale."

The first interpretation means that prices will continue to fall. The second interpretation means that CoreLogic has a vested interest in cheerleading the housing industry. Of course, it's possible that both are true.

tatupu70 says

think it’s fair to say that they are called “distressed” for a reason.

Im not sure on the statistics of how many actually close, but distressed sales include foreclosures, REO's, and short sales.

Distress Sale: "A rapid, urgent sale of assets, often at a loss."

-The nomenclature does not refer to the physical condition of the property, it refers to the outstanding debt obligations compared to the asset value and the need to liquidate immediately.

tatupu70 says

Becuase there weren’t enough of them to skew the numbers like they do now.

There were alot of foreclosures in CA back between 1989 to mid 90s.

DQNews Archived Article
http://archive.dqnews.com/AA1995OFA06.shtm

California Homes Being Sold at a Loss
by Real Estate Analyst John Karevoll
June, 1995

La Jolla, CA.— Fewer California homes are being sold for less than they were bought for, indicating that many potential sellers have decided to stay where they are, a real estate information service reported.

In 30.7 percent of all May home sales, sellers ended up getting less for the home than what they had purchased it for. That loss percentage was down from 32.4 in April and down from 35.4 in May last year, DataQuick Information Systems reported.

Loss sales accounted for a steadily increasing portion of the market from early 1991 until a peak of 42.7 percent was reached in September 1993.

Large newly-built homes that were bought during the 1989 to 1991 sales surge have been particularly exposed, but the problem has spread into other categories as well, said Donald L. Cohn, DataQuick CEO.

" A lot of homeowners have put off selling during the past few years because of declining prices. So a higher percentage of those homes that were put on the market, were put there because the owner was under the gun to sell for one reason or another ". Many of these 'have-to-sell' situations result in a loss.

Many of these ‘have-to-sell’ situations result in a loss.

What people today called "Distressed Sales"...

Did they exclude them from all other sales.. of course not...

It is what it is.. a correction...

Schizlor, doesn't what you described (SS-investor-agent scenario) provide a reason why short-sales should be excluded? If they aren't fair sales and the deals are under the fair market value, then they should be excluded. As for foreclosures, there needs to be a way to compensate for the condition of the house. Yes, if the foreclosure is in great shape, then no compensation necessary. But, if everything has been ripped out and the house has been sitting vacant for a year, then that should be accounted for in some way.

thomas.wong1986 says

If they aren’t fair sales and the deals are under the fair market value, then they should be excluded.

No, they shouldn't be allowed in the first place. This idea that we should permit SS's and FC's to go to the investors at any price they like, but then suggest that when that person goes to list the property (flip) for sale, we should pretend he didn't just buy it for $50k less (same property with no repairs/upgrades) when we appraise it again is nonsense. The property had to be appraised to do a SS, so why let the investor get one set of values for thier purchase, and then tell the appraiser 3 months later, "OK, now it's going to be sold to a real owner occupant, so ignore all that 'distressed' inventory and value this home as if it were in a neighborhood of just nice homes instead, ok?"

I totally get why a homeowner would not like their home value being pulled down by distressed sales. But a proposal that appraisers ignore them implicitly guarantees that a prospective buyer is going to have to pay more than they would otherwise, to acquire that property. It's market manipulation in the owner's favor, which is patently unfair. I think we've done enough to prop up the housing market in the last 4 years.

thomas I have no idea how that attributed that quote to you...

Schizlor says

No, they shouldn’t be allowed in the first place.

Well that goes without saying. But you have to deal with the reality that they are allowed. Plus, if they did what you are suggesting, then the flipper wouldn't be able to flip it because it wouldn't appraise for the higher amount. The NAR wouldn't like that.

Austinhousingbubble says

Foreclosures/distressed sales approximate the closest thing to organic price discovery in this junked-up market. Exclude them, and you distort the picture, not the other way around.

Just Curious AustinHousingBubble,
What's the low-down in Austin these days? Prices falling or rising? What about the "Fortress areas"?

thomas.wong1986 says

Loss sales accounted for a steadily increasing portion of the market from early 1991 until a peak of 42.7 percent was reached in September 1993

Thomas--you realize the difference between a loss sale and a foreclosure, right?

The article you posted is completely irrelevant to the discussion.

Schizlor says

-The nomenclature does not refer to the physical condition of the property, it refers to the outstanding debt obligations compared to the asset value and the need to liquidate immediately.

True--I assumed that it meant short sales and REOs. I think that's a pretty safe assumption.

DQNews Archived Article

California Foreclosures up from 1994
by Real Estate Analyst John Karevoll
August, 1995

La Jolla, CA.—The number of California homeowners being foreclosed on increased slightly last month, a real estate information service reported.

Lending institutions initiated foreclosure proceedings on a total of 9,998 homeowners in July. That was down 10.5 percent from 11,166 in June, but it was up 13.6 percent from 8,802 for July last year, DataQuick Information Systems reported.

So far this year, 75,164 California house and condo owners have received a Notice of Default, the first step of the formal foreclosure process. That number is up 4.6 percent from 71,826 for the first seven months of last year.

On a property-by-property basis, Southern California still has almost twice the foreclosure problem that the rest of the state has, although the severity of the problem is spreading somewhat, DataQuick reported.