According to the National Association of Realtors® Confidence Index (July 2014), distressed properties comprised 11% of our closed residential sales in the month of June. While this is a significant decrease from previous years, I’m not sure that we are totally out of the water quite yet. The climate seems ripe for some not-so good change, and short sale agents may not want to quit their day jobs just yet.
Why there may be more short sales
Here are three reasons that short sales could still be prevalent for a while longer:
- Changes in the market. In 2010, it was a buyer’s market. Homes were ripe for the picking, prices were low, and banks were ready to deal. The pendulum then swung in the other direction. Last spring certain parts of the United States reported absorption rates in days instead of weeks and months. As we are currently trending toward a balanced market, homes are languishing a bit longer. Equity sellers are lowering their prices to attract buyers, and this forces other homes on the market that are wavering between a distressed sale and an equity sale to do the same.
- HELOCs are coming due. Sellers who obtained a Home Equity Line of Credit during the bubble are only paying interest on their loan. Since it has been about ten years since those loans were obtained, payment amounts on those HELOCs will be increasing. In fact, the Los Angeles Times reports that “a wave of potential defaults on home equity lines of credit could start arriving in the next few years.” This may make the market ripe for more short sales.
- Interest rates. Interest rates need to stay low or buyers will need to purchase lower-priced homes. If interest rates increase, then it is possible that prices will have to decrease in order to attract those buyers. Between that and tight lending guidelines, sellers with limited equity may again be forced to sell as a short sale if they lower their list price.
As the years wear on, you would think that short sales would be easier to manage at the banks. It’s true that most short sale agents know what to do, but there are less employees to manage those transactions than there were in 2010. Things still move very slowly and policies change each and every week. While short sales are certainly a much smaller piece of our entire business, know that they are not gone yet and can still be a thorn in your side.