Like everything in real estate, recovery will arrive market-by-market. Is this the year recovery will come to your market? Knowing your market’s bottom could be critical; how will you recognize it?
A fascinating new study soon to be released from Clear Capital , a leading real estate data provider, has useful answers to these questions as well as road signs you can use to track your local recovery. It tossed out some of the outdated views of recovery-like the assumption that home values can’t appreciate at a health rate amid significant numbers of foreclosures.
Equipped with a database that measures REO saturation by market, Clear Capital, has studied several of the nation’s most volatile markets, like Miami and Orlando, and analyzed the processes that brought crippled markets back to life.
Here are some of the signs likely to indicate that a price floor has been hit;
- Modest improvement in distressed home sale prices across all price tiers and declining levels of distressed sales as a percentage of total sales . A recovery in the distressed segment, regardless of the magnitude, creates a resistance to downward movement across all price tiers.
- Cash versus financed transactions are a key to investor participation. In Miami, 59 percent of all sales in 2011 were purchased with cash, as were nearly half (48 percent) of Orlando’s sales. This is a significant increase from the national average of 28 percent in November reported by the National Association of Realtors.
- Substantial improvement in values in their lower priced segments - below $70,000.
In an interview with Real Estate Economy Watch, Alex Villacorta, Clear Capital’s director of Research & Analytics, said the increased stability is occurring in the markets they have studied despite a backlog of foreclosures in the of properties in the foreclosure pipeline . RealtyTrac last week rated Florida third longest in the nation for its median foreclosure processing time, at 806 days.
“What’s happening in these markets is taking place without the backlog,” he said. “During most of 2011, Orlando had an average 50 percent REO saturation. Now it’s down to 25 percent and prices are increasing.”
Dr. Villacorta pointed out that to some degree REO sales are more seasonal than fair market sales. A lot of the markets he’s followed are reaching equilibrium at 30 percent of so of REO saturation.