MRIS CEO David Charron contributes to the Washington Business Journal in the article below. Click here to view original story.
Residential Real Estate Focus
Short sales may pave long road to recovery
We are nearly a half-decade removed from the risky lending practices that contributed to one of the greatest economic collapses in American history, and we’re far from a full recovery.
On a national level, consumer confidence is fluctuating, jobless numbers remain at record levels, and some areas of the country still wonder if they have felt the worst yet.
However, in the Washington area we have a different story to tell — one of resilience.
In downtown D.C., the skyline is teeming with building cranes, and the streets are bustling with construction. According to a recent Gallup poll, Washington is the country’s most economically confident region.
Not only do we feel confident, but we have the jobs to prove it. The Washington region’s unemployment rate is among the lowest in the country.
Our region’s position of strength is further fueled by the housing market.
The median home price in the region is 9 percent above the 2009 level, according to RealEstate Business Intelligence, a subsidiary of Metropolitan Regional Information Systems Inc., while nationally, prices remain near a decade-long low, according to the latest S&P/Case Schiller report.
And yet, regardless of how bright our market looks on paper, we know the region isn’t without its own recovery hurdles. June’s housing activity says it all. For the past 15 years, June has reflected the peak of the annual home-selling cycle in the region, as it does in many parts of the country.
During conventionally favorable economic conditions, buyers will rarely come across a short sale — when the loan balance is more than the current market value — or have a conversation with their real estate professional about distressed properties or bank-owned real estate.
But in this market, conversations about short sale transactions can be as common as choosing between a two-car garage and a third bathroom, especially in areas that have been hit particularly hard, such as Prince George’s County and Baltimore City.
It’s been said that everybody loves a bargain, so there is an odd comfort among buyers to explore short sales — and because of that, another positive story line is emerging. Overall, the region’s housing market is seeing a steep decline in the number of foreclosures, and the increase in successful short sales is actually giving the market some much-needed breathing room to further stabilize.
But you will find wide variations in the recovery among ZIP codes and even within subdivisions at a micromarket level.
While there is a noticeable trend of failed short sale transactions across the region, the District has remained insulated from failed transactions with less than 6 percent of total sales in June, year to date, registered as short sales. This fuels the notion that the region’s housing market is among the most well-positioned in the country.
MRIS data show that the 248 foreclosure sales in July are less than half of the July 2011 foreclosure sales in the Washington region. The decrease in foreclosures highlights the rise in short sale transactions — up 25.7 percent in July, year over year. From January to July this year, Prince George’s County had some of the highest percentages of short sales in the Mid-Atlantic.
A full recovery may come slower than expected, due in part to the rise in short sales, but there is no doubt it will come.
Successful short sale buyers, who purchase homes for less than market value and eventually sell them at a much higher price, may become the unexpected drivers of the real estate market’s overall stabilization.
In markets like the Washington area, where housing can be hard to come by, inventory is down 34 percent, year over year. Overall, the market will benefit when a lender, owner and buyer reach a settlement on a distressed property.
Regardless of the transaction type, there is no denying that housing transactions are occurring in the Washington region and that the positive trend continues unabated. That’s more than just national bragging rights. It’s a reason to be confident in our regional economy.