We have reported on lis pendens filings and foreclosure sales for several years now (visit our new TallahasseeForeclosures Site currently in beta testing). The one thing that always stood out was that such a small percentage of lis pendens that were filed actually made it to a foreclosure sale at the courthouse.
But things are changing. When we look at the blue trend line in the graph above, we see that foreclosure sales rates have doubled just since June of this year. Banks have been sitting on their hands and now the case files have gathered so abundantly that we will be seeing this trend continue for quite some time.
The Shadow Inventory Emerges
Distressed properties make up a large segment of the shadow inventory of homes that will be coming onto the market in 2010 and beyond.
Now that banks are accelerating the pace of getting these homes to sale, we might see the market pick up its recovery pace that began as early as July of 2009. These foreclosure sales are going to result in the banks taking ownership of the properties and the face of our inventory is really going to start to change.
Historically, banks have had such a minority percentage of the homes for sale in Tallahassee, but by mid year, they will represent more than 10% of the homes on the market in Tallahassee, and more than double that if you count the short sales as bank controlled. And how will this affect the real estate market?
Banks consider these homes "Real Estate Owned" (REO) assets as a bad investment, and they look to sell them as fast as possible. They will continue dropping prices until the REO inventory is liquidated.
In the past, this was such a tiny part of the market that it did not figure into market valuations, they were just outlier statistics. But now that this will represent even a larger part of the market than new construction homes, you can rest assured that buyers will take notice and all values will be affected.
The faster we sweep through these distressed properties, the faster the market will return to "normal." The real question is just how fast will the U.S. banking system act to sell all of these homes.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.