Everywhere you look, there is positive news surrounding the housing market. Prices in many parts of the country are up and inventory is down. In Downtown Miami, bidding wars are breaking out for bank owned (REO) properties. It seems like the worst of the housing crisis is behind us and it should be smooth sailing from here. However, there is a big elephant in the room that only a few people are talking about.
There is a huge number of unsold homes and condos that is yet to hit the market. Some people refer to it as "shadow inventory", or housing units that are not making it to the public market for one reason or another. If you are currently contemplating making a housing purchase, it is important to understand the pipeline of properties under foreclosure which will inevitably make their way to the resale market.
The amount of foreclosures in Miami-Dade County remains stratospheric. As mentioned in a blog post on Miami Condo Forum, we are on pace for a record 57,683 foreclosures this year.
Very few of these foreclosures are making it to the resale market. The graph below is courtesy of the Countrywide Foreclosures Blog and shows the total number of REO properties listed by Countrywide for sale in the State of Florida. Countrywide used to be the nation's largest mortgage lender and now is Bank of America Home Loans. The amount of REO properties listed for sale has declined all the way back to 2007 levels. How can this be?
There are 3 logical explanations for this:
- Loan Modification Programs - The Obama administration has implemented numerous programs to help homeowners avoid foreclosure and remain in their residence. To date, the success rate of these programs has been poor as most people end up redefaulting on their mortgage.
- Banks Delaying Foreclosure - At the Miami-Dade courthouse, banks have been delaying foreclosure sales to avoid taking legal title to the property. Once they do, the banks must report it on their balance sheet and are obligated to pay condo maintenance fees and property taxes.
- Banks Holding Back Supply - Banks are releasing REO inventory at a very slow pace. They have such a large inventory of properties that they are able to effectively corner the market and control prices to some extent (this is why we have bidding wars for REO's).
If you talk with many Realtors, they will tell you that Miami Beach is doing just fine and hasn't been plagued with many of the issues that have besieged Downtown Miami. That's simply not true. Miami Beach may be doing better than Downtown Miami, but there is an extensive number of properties facing foreclosure in Miami Beach as well.
Currently in Miami Beach's 33139 and 33140 zip codes, there are 2,449 condos listed for sale on the MLS. 424 of them are short sales (where the sale price is less than amount owed on mortgage) and only 33 are bank-owned (REO) properties. If you look at the public records, there are a staggering 1,143 condos where the mortgage lender has filed a notice of default with the courts, and another 496 scheduled for auction. There are only 424 short sales listed compared with the 1,639 condos under preforeclosure. So at best, 25% of the preforeclosure inventory is currently listed for sale. With regards to bank owned (REO) properties, the listing percentage is even worse. Public records show that 298 condos are bank owned, compared with only 33 listings. A meager 11%, Ouch!
The numbers don't lie. There is clearly something amiss. It's only a matter of time before these foreclosed properties make their way onto the open market.
Disclosure: No positions