Are short sales & foreclosures coming?

[Branden Jordan]

I keep hearing this is bound to happen, but I know that fundamentally the market is very different now than when things "crashed" in 2008ish. Who has data to show short sales are coming? Please show this with concrete evidence and not just an opinion. No offense, but everyone has a guess and opinion, but would like to see what data can be derived from a group like this. Thanks.

Read this:

https://www.baynews9.com/fl/ta...

There are always 2 sides to a coin. I grew up on this beach, and would rather not have it turn into Clearwater Beach or St Petersburg Beach. IRB is a hidden gem. I noticed no investors showed up for this meeting. I wonder if there's intimidation. Why wouldn't they show up and present their business plan? Who has experienced STRs in Pinellas County?

[Dan Maciejewski]

I'm not sure what one has to do with the other but here's my 2 cents on both:

1.  Disclaimer -- what follows is barring a nationwide economic collapse.  IF we have a nationwide economic collapse, there will be a lot more to worry about, like food rations and Venezuela-like runaway inflation.  

It's been a year since I looked at houses, houses under mortgages, and delinquencies, but based on appreciation being so high, I doubt there are many people underwater enough to force a short sale or foreclosure when they could just sell at market value.  Births are outpacing deaths still (thankfully we're not falling off the demographic cliff like Japan or Germany yet), and we are a growing country.  All reports keep saying that we are in a nationwide housing shortage of 6-7.5 million homes.  That means that demand is still outpacing supply - the recipe for higher prices.  As long as property values stay up, appraisals stay up and prices stay up.  When prices are higher than when you bought, there's no need to short-sell or get foreclosed on.  This is a slide from a mortgage broker but it tracks what my research says:

2.  The new rules that were passed were just to keep residents off the politician's backs.  The 2011 State preemption law prevents cities
from “prohibiting” short-term rentals or regulating the duration or frequency of the rental.

The rules about parking and quiet hours are already the County rules, so they are a waste of words.  The $400 registration fee may be seen as putting an undue burden on property owners -- if that's the case, the city would lose all rights to regulate STR. We'd have to see it challenged in court. And does anyone honestly think that a $400 registration fee is going to make someone making cash-flow sell?

The limit of 10 people per household will also probably be challenged in court.  There are plenty of non-rental houses with more than 4 bedrooms, and all of those are now limited to 10 people!  If I spent 2-8+ million on my 5-10-bedroom beach house, only to be told I can't host my own family, I would be livid!  There will likely be selective enforcement -- only on STRs, and that will likely provoke a lawsuit that I'm not sure the city is funded for.  It only takes one litigation attorney owner or a well-heeled owner to sue the city

The only way that regulations with teeth could be put into effect would be the State deciding to allow cities to have home rule again. And that would mean turning their noses up at the millions in additional tax revenue from the 6% "bed tax" on transient rentals that the STR boom has produced. I don't see that happening. Anything's possible, though. ¯\_(ツ)_/¯

Your other questions:

There is definitely intimidation.  You see the "Homes, not Hotels" signs in every other yard.  At least a few people are tracking owner information and harassing them IRL.  FB groups are rampant with renters throwing fits about home affordability.  I have seen this firsthand from clients sharing with me.

A lot of STR investors are from out of town. They can't always fly in to present their arguments and wouldn't due to the mob mentality at the town halls. And a business plan is no way to fight an emotional mob, anyway -- why would I care about anyone else's business plan if I'm complaining about the lack of street parking on my block?

[Rob Jacobs]

Yes, It's coming and it's nothing to do with Residential housing, it's entirely outside influences of other markets. For instance, subprime mortgages were fixed but, the banks in all of their brilliance decided to offer subprime in Auto, Commercial real estate, Business loans and other markets. The 3 above are all in bad shape and ready to collapse. 

In addition, the Fed wants to raise unemployment to around 5%. How does the fed stop it at that target number? Easy answer, they can't control it and it it stops at 5%, it's a miracle.

Corporate losses are staggering and companies are trying to hold back from laying people off but, as stocks decline, investors will demand something to be done and eventually layoffs will happen. Once people burn through their savings, it's off the auction block and that's where it begins.

I'll be posting  BLOG with data to back up everything stated here but, I don't have the time right now so, I'll drop a link once it's done.

[Sasha Mohammed]

following, and i appreciate the ask for evidence supporting one's opinion. 

personally, I think "no", and I agree with @Dan Maciejewski, that is barring any nationwide economic collapse (or worse, global).

Looking at the numbers, we are at an absolute historic low on new home builds, albeit Housing Wire put out an article today indicating that builder sentiment is rising finally. We're meanwhile also in a historic low of available inventory. The massive refi boom (2020/2021) where anyone and everyone who could refinanced into historic low interest rates means move-up buyers are staying put and those trying to downsize also would be paying more for less house (say leaving a 4 br SFR with a 3% rate to move to a 2 br condo at a 6% rate). We also have historic high's in home equity, and a ton of demand still, meaning anyone in trouble would sell open market rather than foreclose/ short sell.

I recall reading that millennials have finally surpassed boomers in numbers, and we are at peak home-buying age. meanwhile, boomers are not selling due to downsizing costing more than staying put and 'aging in place'. 

Currently, real estate is in a major supply-crunch, and i'm not sure about your market, but 6-something % interest rates have barely slowed us down here (orange county, CA). Every market is different, and they can be VERY different. 

Unemployment is something to keep an eye on. theoretically if we have mass layoffs again you could see a small uptick in defaults. But i dont think it would move the needle much. With Banking being in sketchy waters, I suspect the govy bailouts are not even close to over. And with AI coming at a breakneck speed.... TBH i suspect we'll be having UBI conversations in the next few years. 

Thanks for posting this! looking forward to reading other's responses on the matter!

[Chris Seveney]

@Branden Jordan

Without reading everyone’s posts because they are long winded I will break this down very easy

Will defaults increase - yes as unemployment and defaults are all time lows

Will foreclosures increase - slightly but because of equity in assets we will see more bankruptcies than anything

[Peter Mckernan]

Foreclosures and short sales have increased and started increase rapidly, and that is going off numbers. You can see they have ticked up in the chart below from ATTOM Data; however, they are not going to significant highest as they were in 2008. 

This is a little bit of an older chart stopping at Q3 in 2022; however, this overall is something to watch for as we go into 2024. The market will see more as unemployment numbers do start to go up as the income will be reduced in the households; however, one thing that is holding back the massive uptick is the equity gained in the last three years where people can get out and the low rates. The home values per Zillow's economist stated that home values since 2020 went up across the board 38%. That means that if you bought something prior to that, even in year 2019 you will see your home value go up to almost 40%, which gives people with a lower downpayment (FHA/low Conventional) time to get out with equity.

The other lead indicator is that there is very low inventory, this shows below that the inventory levels of housing is 1.4 million, and in 2019 it was 2 million. The housing crash of 2008, there were 4.5 million to 5 million homes are the market. That means that we have 3.6 times less inventory than our crisis in 2008 which means the demand will outpace the houses on the market. 

 https://ycharts.com/indicators..

[Eric Fernwood]

Hello @Branden Jordan,

Broad statements do not apply to specific markets. In this post, I will focus on the situation in Las Vegas.

2008 vs. Today

2008:

• 90 months of inventory

• 90% of homes in Las Vegas were underwater.

• The number of available jobs plummeted leaving a significant percentage without work.
• About all that was on the market were REO properties and short sales.

Today:

• 2.4 months of inventory and falling.
• Only a small percentage of Las Vegas properties purchased in 2022 or later are underwater.
• According to Monster and Glass Door, there are between 26,000 and 31,000 open jobs.
• The current number of distressed single-family homes (06/28/2023):
  • Bank Owned (REO): 12
  • Short Sale: 10
  • Foreclosure Stated: 13

I see no comparison between 2008 and today.

What are we seeing in the property segment we target? See the charts below.

Sales - Median $/SF by Month

Prices have continued their upward trend since January, driven by shrinking supply and steady demand. Year-over-year $/SF is down 9.8% due to a large increase in $/SF in April 2022.

Sales - List to Contract Days by Month

The median number of days on the market continues to drop rapidly. This indicates strong demand despite high-interest rates.

Sales - Availability by Month

This chart displays the average daily number of properties available for sale in a given month. The quantity of homes on the market is decreasing, which will drive up prices.

Sales - Months of Supply

The inventory is now less than one month, while a balanced market typically has a 6-month supply. Scarcity traditionally leads to an increase in prices.

Jobs

Jobs are the heartbeat of any city. Currently, Las Vegas has between 26,000 and 31,000 open jobs. There is between $18B and $26B for new projects under construction, which will create more jobs and bring more people to Las Vegas. And, more are coming.

Source: Thousands of California businesses have fled Golden State for Las Vegas

Conclusion

From what I can see and read, Las Vegas is currently performing well and is expected to continue improving in the future.

[Zen Lenon]

Quote from @Eric Fernwood:

Hello @Branden Jordan,

Broad statements do not apply to specific markets. In this post, I will focus on the situation in Las Vegas.

2008 vs. Today

2008:

• 90 months of inventory

• 90% of homes in Las Vegas were underwater.

• The number of available jobs plummeted leaving a significant percentage without work.
• About all that was on the market were REO properties and short sales.

Today:

• 2.4 months of inventory and falling.
• Only a small percentage of Las Vegas properties purchased in 2022 or later are underwater.
• According to Monster and Glass Door, there are between 26,000 and 31,000 open jobs.
• The current number of distressed single-family homes (06/28/2023):
  • Bank Owned (REO): 12
  • Short Sale: 10
  • Foreclosure Stated: 13

I see no comparison between 2008 and today.

What are we seeing in the property segment we target? See the charts below.

Sales - Median $/SF by Month

Prices have continued their upward trend since January, driven by shrinking supply and steady demand. Year-over-year $/SF is down 9.8% due to a large increase in $/SF in April 2022.

Sales - List to Contract Days by Month

The median number of days on the market continues to drop rapidly. This indicates strong demand despite high-interest rates.

Sales - Availability by Month

This chart displays the average daily number of properties available for sale in a given month. The quantity of homes on the market is decreasing, which will drive up prices.

Sales - Months of Supply

The inventory is now less than one month, while a balanced market typically has a 6-month supply. Scarcity traditionally leads to an increase in prices.

Jobs

Jobs are the heartbeat of any city. Currently, Las Vegas has between 26,000 and 31,000 open jobs. There is between $18B and $26B for new projects under construction, which will create more jobs and bring more people to Las Vegas. And, more are coming.

Source: Thousands of California businesses have fled Golden State for Las Vegas

Conclusion

From what I can see and read, Las Vegas is currently performing well and is expected to continue improving in the future.

 Wow, @Eric Fernwood you go above and beyond! Thanks for sharing the stats and thank you for connecting with me over the weekend.