Headlines – Week of March 20, 2011
March 28, 2011
Existing vs. New Home Pricing
According to a recent post on the National Association of Realtors blog, newly constructed homes command higher prices than existing homes.
Historically the premium of new home price above existing home price has been about 15 percent, however, recent price data say that the premium has risen to 45 percent.
The median price of new homes in January was $230,600 versus the median price of existing homes of $157,900. Much of this difference is due to distressed home properties on the market that are selling for much less than the replacement cost. However, with this exceptionally large price differential between new and existing homes, the NAR suggests that either new home prices have to fall or there is good growth potential for existing home prices.
State by State Estimate of Shadow Inventory
Much has been written over the past few years about the size of the “shadow” inventory of existing residential real estate. Depending on who you’re listening to it can mean different things.
So what is the definition of shadow inventory?
Definition 1– Foreclosed but not listed. Some analysts say the “shadow inventory” is the homes which the bank foreclosed on but not sold. These are homes that are not on the market but owned by the bank (REOs not listed on the market).
Definition 2 – Homes in the foreclosure process as well as delinquent mortgages where foreclosure proceedings are imminent.
Definition 3– All homes delinquent, short sales not on the market, REOs not on the market, and anything in the foreclosure process.
Definition 4 – All of the above plus modified loans (as they have a large percentage of failing anyway, pay option-arms about to be reset, and lots sitting idle with builders in trouble.
Many just go with the Standards & Poor’s definition which most similar to Definition 3… all delinquent loans, not just REO’s.
Recently, Research Economist Selma Hepp of the National Association of Realtors published an article on the NAR blog, Economist’s Outlook which attempts to estimate the shadow inventory state by state.
Hepp’s research determined that although the foreclosure crisis at times appears to be a national problem, in actuality only four states have continually had relatively worse foreclosure problems: Arizona, California, Florida and Nevada. These four states still account for 42 percent of the foreclosure inventory today. And, by adding Illinois, New York and New Jersey to the mix, the share increases to almost 60 percent of all inventory.
The national numbers indicate the situation is mostly improving … at least in terms of delinquencies. According to the research, in the last quarter of 2010, serious delinquencies, those 90+ days late, fell over the past year in all but four states, Washington, New Jersey, New York, and Vermont. The change in the total non-current loans is in fact down 38 percent nationally, with states such as Hawaii, California, Nevada, New Hampshire, Illinois and Massachusetts all seeing decreases over 40 percent over the last 12 months.
The share of delinquent loans already on the market is estimated based on NAR’s REALTORS® Confidence Index (RCI) survey in which Realtors report, among other things, what share of their sales were short sales or foreclosures. State level monthly data is averaged over the past year to get the state level estimates of short sales and foreclosures as shown in the map below.
The following chart shows top 26 states with highest levels of shadow inventory.
The following chart shows the 25 states with lowest levels of shadow inventory.
As expected, Florida tops the list with the largest shadow inventory of over 441,000 properties. California, Illinois and New York follow Florida in the levels of shadow inventory. This is also not out of the ordinary, given that these states have also had high delinquency and foreclosure rates, but also relatively longer foreclosure processes. On the other hand, Arizona and Nevada, while still ranking among top 25 states, are faring relatively better in terms of the shadow inventory. This is largely due to their shadow inventory moving somewhat faster through the pipe lines and comprising larger share of existing sales.
The following map shows the number of months it would take to clear the shadow inventory by state. The months’ supply is estimated by dividing the shadow inventory and the monthly number of distressed sales. The numbers range broadly from 51 months in New Jersey to 7 months in Nevada.
Various issues also affect shadow inventory and how long it takes to clear it. One important issue currently taking place in Florida is the controversy over banks’ foreclosure processes and documentation which has a significant impact on what happens with shadow inventory.
18% of Fla. homes vacant
According to recently released data from the U.S. Census Bureau 18 percent, or 1.6 million housing units are currently vacant in the State of Florida.
A number of recent media reports have focused on the large number of vacancies, considering it a reflection of homes for sale, and an indication of the time it would take for the real estate market to fully recover. However, many homes the Census Bureau considers vacant are empty by choice. These are homes in which snowbirds live only a few months out of the year, for example, or homes under construction but not yet inhabitable.
The U.S. Census Bureau defines vacant as a dwelling in which “no one is living in it at the time of the interview, unless its occupants are only temporarily absent” or “entirely occupied by persons who have a usual residence elsewhere.” The latter definition would include snowbirds or other part-time Florida residents
Despite these discrepancies, Florida’s vacancy rate surpassed other states. Arizona’s vacancy rate was 16 percent, while Nevada’s was 14 percent. California had 8 percent vacancies.
In Florida, Collier County registered a 32 percent vacancy rate, according to the Census Bureau, though Southwest Florida has a high number of snowbirds that would register as vacant. Lee County’s vacancy rate was 30 percent, while Miami-Dade registered 12 percent.
Posted by Scott R. Lodde