Real estate agents participating in the Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions report that residential property values rose 6 percent from August to September and reversed a decline of 1 percent from July to August.
The increase was driven by high demand for REO or bank-owned properties, according to transaction data reported by survey respondents. Nationally, the average price of damaged REOs rose from $106,700 in August to $124,500 in September. The average price of move-in ready REOs rose from $178,500 in August to $199,300 in September. In September, damaged REOs accounted for 15 percent of home purchase transactions and move-in ready REOs accounted for 16 percent of transactions.
The average price for non-distressed properties remained nearly constant between August and September. In August, the average price for non-distressed properties was $267,900; in September, the average price for these properties was $268,200. Non-distressed properties made up 55 percent of home purchase transactions in September, with short sales accounting for another 14 percent.
Average home purchase transactions per survey respondent, a proxy for overall market transactions, grew at a rate of 16 percent from August to September. In most years, home sales decline from August to September.
Strong demand for moderately priced REOs caused time-on-market for these properties to decline markedly. In August, damaged REO stayed on the market an average of 9.4 weeks; by September, time-on-market had declined to 7.0 weeks. For move-in ready REOs, time-on-market declined from 8.0 weeks in August to 5.9 weeks in September. In contrast, average time-on-market for non-distressed properties rose from 13.0 weeks in August to 14.2 weeks in September.
First-time homebuyer demand for properties continued to be strong in the month of September. First-time homebuyers accounted for 42 percent of home purchase transactions in September. For the first two months of 2009, before the enactment of the first-time homebuyer tax credit, first-time homebuyers made up 32 percent of home purchase transactions. Survey respondents reported that first-time homebuyer traffic-an indicator of future transactions–grew sharply in September while traffic for current homeowners and investors was level or declining. The majority of move-in ready REO is purchased by first-time homebuyers.
“Our survey statistics are indicating a mini-boom in the housing market,” commented Thomas Popik, research director for Campbell Surveys. “There’s a confluence of positive factors: historically low interest rates, high demand from first-time homebuyers before the expiration of the tax credit at the end of November, increased affordability, lower inventories of foreclosed properties, and a perception among homebuyers and real estate agents that the market has turned.”
The survey obtained hundreds of comments from real estate agents regarding current market conditions. Many agents indicated an REO buying frenzy in local markets, especially California. “Entry level REO’s are taken by the storm! Many multiple offers!” exclaimed a California agent. “Low inventory and high demand are resulting in 20-60 offers on most properties in the entry level to moderate price points. First-time homebuyers have difficulty competing with investors and high down-payment buyers,” reported another real estate agent located in California. “Banks and listing agents are pricing these REO’s at liquidation prices to encourage a bidding war and it’s working,” wrote a real estate agent located in Florida.
Despite reporting strong increases in both average prices and number of transactions, real estate agents responding to the survey gave a hint of looming problems caused by rising unemployment. For the third month in a row, the survey’s inventory index showed rising inventories of short sale properties, while inventories of REO properties were flat or declining. Because of a typical time period of 12 to 18 months between the first missed mortgage payment and foreclosure auction, REO properties come on the market long after borrowers experience financial distress. In contrast, many homeowners decide to attempt short sales soon after job loss.
“REO time on market is falling fast. However short sale inventory is increasing rapidly to 54% of inventory,” reported a California agent. “We are seeing more and more short sale listings in every area but very few REO properties are currently on the market,” reported a Florida agent. Another California agent stated, “Large numbers of short sale homes dominate the current inventory.”