Three Patterns of Distress in Northeast Real Estate Markets

Quick Market Overview
Three Regional Distressed Trends
Finding Best Deals in Any Market
Real Estate Red Flags

U.S. Home Sales
Nationwide August home
sales at 4.8 million
annualized pace, down a half-percent
from July and down
16 percent from a year ago.
• Fourth consecutive
month with a year-over-year
decrease in U.S.
sales volume
• Lowest annualized pace
since January 2012

U.S. Home Prices
• Median home price nationwide
at $195,000, up 3 percent from
July and up 15 percent from
year ago.
• 29th consecutive month where
U.S. median home price has
increased from a year ago
• Highest level since August
2008 – a six-year high.

U.S. Home Prices
• Overall sales of home
priced $500,000 or
more are up 23
percent from year ago
as a share of all
sales.
• But remember we’re
talking about a bigger
share of a smaller
overall pie.

Local Market Prices
• Majority of markets are
where median home
price is close to or
below $200,000.
• Many of these markets
are also hot spots for
institutional investors
buying up thousands of
single family homes as
rentals.

Local Market Prices
• These are markets behaving
rationally, returning to single-digit
appreciation that is sustainable for
the longer term.
• Good news is that this indicates
another bubble is not forming.
• Bad news: the other “B” word, a
return to a boring market.

Connecticut
• Median list price of $219,900,
down 4 percent from previous
month but up 2 percent from Aug
2013.
• 17 consecutive months of annual
increases in prices.
• Coming off 38-month high of
$239,000 in June 2014.
• 2 percent annual appreciation in
August 2014 compares to 17
percent annual appreciation in
August 2013.

Mass.
• Median list price of $325,000 in
Aug. 2014, down 1 percent
from previous month but up 7
percent from year ago.
• 21 consecutive months of year-over-
year increases in home
prices.
• 51-month high hit in June 2014.
• 7 percent annual increase in
Aug 2014 compares to 24
percent annual increase in Aug
2013

PA
• Median list price of
$169,995 in Aug 2014,
down 3 percent from
previous month but up 3
percent from Aug 2013.
• Fifth consecutive month of
annual increase in home
prices.
• Hit 50-month high in June
2014.

New York
• Median sales price of
$385,000 in Aug 2014, up 4
percent from previous
month and flat from Aug
2013.
• 16 consecutive months of
flat or increasing prices on
annual basis.
• Hit 69-month high of
$390,000 in Sept 2013.

R.I.
• Median list price of $239,000
in Aug 2014, down 2 percent
from previous month but up 4
percent from year ago.
• 20 consecutive months of
year-over-year increases in
home prices.
• Hit 50-month high of
$245,000 in June 2014.
• 4 percent annual increase in
Aug 2014 compares to 21
percent annual increase in
Aug 2013

U.S. Foreclosure Activity
Scheduled foreclosure
auctions nationwide
increased annually in
August after 44 consecutive
months of decreases.

U.S. Foreclosure Activity
Increasing auctions
impacting Connecticut,
New York, New Jersey,
Maryland.

3 Regional REO Trends
REOs Returning to Normal
REOs Rebounding
REOs Repressed

REOs Returning to Normal
REO activity YTD in 2014 is at or below levels from
2006 before housing bubble burst
No legislative or legal intervention creating backlog of
deferred REOs
Foreclosure timeline on the decline or flat
Low risk of another surge in REOs from negative
equity, NPL sales or other
Includes markets in MI, TX, GA

Returning
• 2014 REOs at 25
percent below
pre-bubble norm
of 169 per month.

Returning
Still rising average
time to foreclose a
bit of a concern
for Pittsburgh
being fully back to
normal.

Returning
• Another concern is
huge uptick in
foreclosure starts
two years ago.
• But given the
average time to
foreclose is less
than two years in
Pennsylvania this is
a dwindling
concern.

Returning
• NPL sales is
another metric that
could signify
deferred
foreclosures down
the road.
• Pennsylvania had
the 10th most FHA
NPL sales in 2013.

REOs Rebounding: Atlantic City
REO activity YTD in 2014 above 2013
Most likely legislative or legal intervention created an
REO backlog now hitting market
Foreclosure timeline high, often rising
Includes markets in NY, MD, OR, CT, NJ
Rebound is temporary, but temporary can mean
multiple years

Rebounding
• REO activity has
increased from
previous year for three
consecutive years.
• 50 percent increase
from 2013 to 2014.
• Still 33 percent below
previous peak in 2010.

Rebounding
• New Jersey has longest
average time to foreclose
of any state nationwide.
• Average time to
foreclosure up 5 percent
from year ago, up 242
percent from 2007.
• Foreclosure moratorium in
2011, foreclosure
mediation legislation and
recent change to
requirement for

Rebounding
• Atlantic City
foreclosure starts
have increased on a
year-over-year basis
in 29 out of the last
32 months.
• Foreclosure starts
increased 52 percent
from a year ago in
September.

Rebounding
• New Jersey had the
second most NPL sales
by the FHA of any state
in 2013, second only to
Florida.

REOs Repressed: Boston
REO activity YTD in 2014 below 2013 and 2012
levels but often above 2006 levels
Most likely legislative or legal intervention created
artificial drop in REOs
No long-term rebound in REO yet but may be signs
of recent increase
Foreclosure timeline high, often rising
Includes markets in CA, NV, FL, MA, IL

Repressed
• 2014 REO activity
down 30 percent
from 2013.
• Still well above 2006
levels and not far
below 2007 levels.

Repressed
• Massachusetts had seventh
highest average time to
foreclose in third quarter.
• Average time to foreclose is
up 18 percent from a year
ago.
• Court rulings over the past
several years impacting the
foreclosure process along
with 2012 legislation to
prevent foreclosures have
contributed to the
lengthening process.

Repressed
• Seven consecutive
months ending in
September of year-over-year
increases in
foreclosure starts.
• Another surge in
foreclosure starts in 2012
foreshadows an imminent
surge in REOs given the
average time to foreclose
is about two years in
Massachusetts.

Repressed
• Massachusetts 2013
FHA NPL sales were
the 18th highest in
the country.

Using Data to find Deals
Best and Worst Deals Nationally
Best and Worst Deals Regionally
Foreclosure Deal Heat Matrix

Best Deals
• Most of the best deal
profiles are either
properties in default
or scheduled for
auction.
• Most are vacant
• Most have negative
equity

Worst Deals
• Somewhat surprisingly REOs
often sell at a premium rather
than a discount.
• Properties in default that are
underwater (typically short
sales) are no longer good
deals. Although properties in
default with positive equity
are.
• Top group is control group that
is not in any form of distress
that we know of.

Best and Worst Deals Regionally
Property Profile U.S. Connecticut Massachusetts New Jersey New York Pennsylvania
Discount/Premium=Avg Pct Below Market Compared to Control Discount/Premium Discount/Premium Discount/Premium Discount/Premium Discount/Premium Discount/Premium
Auction + Negative Equity + Vacant + 1950< Effective Year Built>1990 -28.2% 0.0% 0.0% 0.0% 0.0% -13.6%
Default + Positive Equity -26.0% -13.7% -25.6% -17.7% -15.3% -24.1%
Default + Negative Equity + Vacant + Effective Year Built<=1950 -25.8% -13.5% -14.4% -20.2% -12.5% -15.5%
Auction + Negative Equity +Vacant -24.7% -12.3% -13.2% -30.4% -38.5% -23.8%
Auction + Vacant -24.6% -12.2% -13.1% -26.3% -35.1% -25.9%
Auction + Negative Equity + Vacant + Effective Year Built<=1950 -23.8% -11.5% -12.4% -30.4% -16.8% -24.4%
Auction + Negative Equity + Vacant + Effective Year Built>=1990 -23.6% 0.0% -12.2% 0.0% 0.0% -9.1%
Auction + Positive Equity -23.6% -11.3% -35.7% -17.6% -36.6% -31.1%
Default -23.3% -32.5% -26.5% -19.3% -17.4% -21.6%
Default + Negative Equity + Vacant + 1950< Effective Year Built<1990 -22.4% 0.0% -10.9% 0.0% -15.3% -7.8%
Default + Negative Equity -20.9% -8.6% -27.7% -21.1% -22.6% -17.4%
Auction -20.5% -8.2% -34.5% -22.0% -36.9% -28.0%
Default + Vacant -20.2% -7.8% -18.3% -18.3% 4.7% -21.2%
REO + Vacant -18.2% 0.0% -18.2% -5.1% -11.1% -3.6%
Auction + Negative Equity -16.8% -4.5% -5.3% -27.0% -38.1% -21.7%
Default + Negative Equity +Vacant -16.4% -4.1% -4.9% -20.1% -12.6% -15.5%
Control+ Positive Equity -7.6% -3.0% -3.9% -1.4% -2.1% -5.9%
REO + Effective Year Built>=1990 -6.3% 6.0% 1.2% 0.0% 0.8% 8.3%
REO + 1950< Effective Year Built<1990 -1.7% -1.8% 1.3% 11.4% -27.2% -10.2%
Default + Negative Equity + Vacant + Effective Year Built>=1990 1.9% 0.0% 13.3% 15.0% 8.9% 16.5%
REO 2.5% 2.1% 2.5% -9.2% -12.1% -10.2%
REO + Effective Year Built<=1950 6.7% 2.4% 2.5% -9.2% -11.9% -10.3%
Control+Negative Equity 19.2% 8.1% 13.3% 5.8% 14.4% 19.4%

Real Estate Red Flags
NPL Sales
Affordability
Cash and Institutional Investors
HELOCs and HAMP Loan Mods

NPL Sales
More than 70,000
NPLs sold by FHA
alone between 2010
and 2013

NPL Sales
Backed by properties
worth a cumulative
$9.6 billion

Opposite Directions

NPLs delaying foreclosure?

Affordability
• 34 percent of nearly 1,200
counties analyzed had exceeded
affordability “norms” in the
second quarter.
• No counties had exceeded
affordability levels seen during
the housing bubble.
• Average affordability level for all
counties over last 14 years was
19 percent of median income
needed to buy median priced
home.

Student Loan Impact
• Nationwide students with student loan
debt need to make 34 percent more
income to afford a median-priced
house.
• In Orange County student loan debt
reduces buying power by only 8
percent.
• Bad news is that that median income in
Orange County is less than minimum
income needed to buy a median priced
home – with or without student loan
debt (based on max 43 percent of
income spent on housing).

Cash Sales
• Coming down after spike at
the end of last year/beginning
of this year.
• U.S. at 38 percent compared
to long-term average of 32
percent (back to January
2001.
• California at 28 percent and
Orange County at 27 percent
compared to long-term state
average of 25 percent.

Institutional Investors
• Also coming down after
spike late last year in OC.
• U.S. at 4.7 percent
compared to long-term
average of 3.1 percent
(since Jan 2001).
• California at 1.8 percent and
Orange County at 0.6
percent compared to state
long-term average of 2.4
percent.

Home Equity
• Still more than 8 million
homeowners seriously
underwater.
• Down to 15 percent of
all homes with a
mortgage from 29
percent at peak of
negative equity in
second quarter 2012

Home Equity
• Highest underwater
percentages on loans
originated in 2004 to
2008.

Other Risks
• HELOCs
• 16 million outstanding
• $79 billion coming due in next few years
• Resetting HAMP loan mods
• More than 775,000 coming to end of
government subsidized period this year
• Typical increase expected to be $197 for
monthly payments

Resources
Local market stats and trends down to county, city, zip level:
http://www.realtytrac.com/statsandtrends
RealtyTrac market reports: www.realtytrac.com/content
Download mailing lists of homeowners in foreclosure and other
likely sellers: http://mega.realtytrac.com/
RealtyTrac Premium Subscription

Thank You!
Daren Blomquist
darenb@realtytrac.com

Three Patterns of Distress in Northeast Real Estate Markets

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