May 19th, 2010
Distressed Property Sales Statistics
Depending on the season, anywhere from 15-35% of residential real estate sales in the Pikes Peak Region are distressed properties (short sales and foreclosures) in the past few years. We have a relatively stable market compared to Nevada, Arizona, Florida, and California. The number of mortgages that are underwater in California varies with the city, but many California communities are finding they have an unusually high number of homeowners who owe more than they can sell their home for.
The Top Three
The cities and states with extremely high rates of underwater mortgages are also the markets where huge unsustainable appreciation rates were the norm during the height of the market. These appreciation rates were exceeding 30% a year in many cities. Three statistics I thought were the scariest for homeowners were Las Vegas (70% underwater), Phoenix (58%), and Florida (48%). It will take many years for these locations to dig out from under their real estate problems. As long as rates stay low, buyers will come, but the condo markets will continue to be in distress due to tightening financing requirements for these properties. Las Vegas and Florida have a lot of condos that were built with speculation in mind.
Strategic Defaults
A consequence of all this misery is that some homeowners are making strategic defaults - a fluff term that means walking away from your home and sending the keys to the bank. Many homeowners in these greatly distressed markets don’t see any way out. They would rather trash their credit than pour more money into these properties or wait for the turn around. Statistics show that homeowners most likely to default on their loan are those that have a loan to value ratio of 125% or greater. Other sellers with an underwater loan are seeing an opportunity to rent out these properties to people who would rather rent than buy or who aren’t in a position to buy, let them pay the mortgage, and wait for things to improve. And the third group doesn’t need to move, like their homes, and are content to just wait it out and live their lives.
Just food for thought. What do you think will happen in the next 5 years in your community?