I Want My REO- Updated

I wrote in April (I Want My REO)about the shortage of REO properties for sale in Sonoma County, CA. Many other writers in different parts of the country have noticed the same thing where they work. I just compiled the stats for May and the situation is even worse now that it was in April.

Good News First

Sales are great! At the bleakest moments last year it looked like nobody would ever buy a house again. Those dismal times seem to be past. There are clearly weak segments of the market where I work, and some parts of the country are still waiting for any "green shoots", but I want to be the bearer of glad tidings. Sonoma County residential sales at the entry level segment of the market are very strong.

The chart accompanying this post shows the news in ways that may be clear to other real estate professionals, but are not at all clear to first time buyers. So let me spend a minute explaining the chart. Bear with me or skip ahead if you don't need help with charts.

The top line represents REO properties, both single family homes and condos,  that sold in May. 187 is the actual number It represents roughly six homes absorbed per day for the month. That compares to 134 REO sales last year for the same time period, so the volume is up almost 50% compared to a year ago.

The second line down is for pending REO sales. These are pretty firm transactions since the buyers have removed their inspection contingencies. There are 87 in this category and if you add them to the sales number you have 274 transactions that are either closed or near closing in the last month.

The third line looks as firm as the others, but it's the most hard to pin down. These are contingent REO sales and they often move back into active status. Many statistical programs consider them to be active, but if you are an eager buyer you will find that trying to purchase a property that is already contingent is a mainly futile exercise. I don't have any firm numbers for how many of these sales progress to pending and then sold, but I think most of them do. For our purposes I am going to consider them mainly sold.

The final line, Active,  is where all real estate buying takes place. Properties are listed, agents show them to buyers, offers get written, and if you're lucky, your offer gets accepted. Then it can move from Active to Contingent. All the upper lines represent frantic paperwork, inspection, and appraising activity, but that work is taking place for homes that are already off the market, so from a buyer's point of view the top three lines don't matter.

You can see that there are less than 140 REO properties available to purchase. Almost twice that many are in sold or pending status in the last thirty days, so that's less than half a month's supply at today's absorption rates.*

There are several key term to keep in mind for the active listings represented by the bottom bar:

*Absorption Rate - how long does it take to clear the homes off the market at the current buying pace.

Seller's market - when sellers get multiple offers for a property. Offers are frequently for more than the asking price.

Buyer's market - little competition for property. Buyers have their choice of properties and can dictate terms including lower prices, more repairs done by sellers, and other concessions from the sellers.

Inventory - What you can actually buy, i.e. there's a for sale sign on it.

What the chart tells us very clearly is that there is very little inventory, the absorption rate for REO listings is extremely high, and that we are strongly in a seller's market. What this chart doesn't tell you, but I will, is that the buyer's market from January and February of this year is gone.

I will write in future posts about a potential surge of new foreclosures coming to the market. There are clearly foreclosures happening again, but it's too soon to tell what the balance will be between buyers and sellers. For now, sellers rule. I have some additional information about Sonoma County REO Days on the Market and sales prices relative to listing prices on my reo.sonoma.net blog.