Recently, an agent asked a question on Trulia, “Tonight’s news is predicting that 2011 will be hit very hard by increased foreclosures, quoting stats from RealtyTrac, and a further prediction that home prices could fall another 5% on average nationally. What are your thoughts?”  This really is a two part question, so I will talk about it as such.

 First of all, Realty Trac does just what it’s name says, they “track” foreclosure notices  filed with municipalities, (by scouring public records) in addition to actual foreclosed (REO) properties.  The number of filings does not always equate to the number of actual foreclosures.

To quote Realty Trac “…said Thursday that foreclosure levels hit new highs last year, with 3.8 million foreclosure filings on 2.9 million properties, a 2% increase from the previous year.

There are still options for sellers who are underwater, including loan modifications, short sales, deed-in lieu, and of course the HAMP program (Home Affordable Modification Program), which looks like it will have some major revisions to it’s policy in the next few weeks. Of course, another option is to just walk away, but if that happens in a majority or minority of homewoners remains to be seen.

 According to the December 2010 HUD Home Statistics Report,(and several of their graphs site Case-Schiller reports which I will mention later on):

  •  Expectations On House Prices Have Shifted Up From 2009
  • Mortgage Rates Remain Near Record Lows And Affordability Index Remains High
  • Foreclosure Starts And Completions Fall As Lenders Review Internal Procedures
  • Home Equity Down From Prior Quarter But Remains Higher Than First Quarter 2009

 See this link for the full report:

 I do believe there will be a lot more foreclosures filed within municipalities given that a lot of ARM’s (adjustable rate mortgages) are coming due in 2011 and 2012.  That still doesn’t mean they will proceed to actual foreclosure. With the job market seemingly in a slight upswing, many people who lost their jobs will find new ones, and even if underwater now, will have the opportunity to refinance or modify their loans to make them more manageable.

As an additional note, as of January 24th, existing home sales rose 12.3% in December to a seasonally adjusted annual rate of 5.28 million units from 4.7 million units in November. The inventory of unsold homes on the market declined 4.2% to 3.56 million, an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

However, I also believe that the “national” averages have nothing to do with our (very) local markets.  Sales rates as well as sales prices are very local in nature, and that information as well, needs to reach the publics eyes and ears as well.

Generalized negative information only causes further reluctance and fear in buyers, as well as creates an unnecessary feeling of uneasiness (to say the least) in both buyers and sellers, only furthering the decline in some areas, and helping others that were doing OK to decline as well.

Here’s a great line to current (an recent past) predictions from some of the most revered soothsayers in the Real Estate business:

While states like Florida, Nevada, Arizona, Michigan, California and Colorado etc., whose foreclosure rates are over the top, do represent what is happening in parts of the country, they  obviously also contribute to those “national averages”, when they are reported. (Something the media loves to draw attention to, to create a need for people to watch their news shows or read their columns in the newspaper). “National home average sales prices are down XX% in January!!”, or “How low can home prices fall??” ………News at 11.

 Case-Schiller makes their predictions (and post their historical data), and the public and media take is as gospel. However, IMHO, they aren’t the be all to end all either.

Case-Schiller uses MSA’s as their basis for home statistics. If you aren’t aware of what an MSA is it’s a Metropolitan Statistical Area based on census, and the area delineations come from the federal OMB (Office of Management and Budget). Their numbers may be “correct” for the particular MSA, but again, they aren’t always correct for the local markets.

As defined:

The metropolitan area is defined by the U.S. Office of Management and Budget as the New York-Northern New Jersey-Long Island, and the New York-New Jersey-Pennsylvania Metropolitan Statistical Area (MSA), with an estimated population of 19,069,796 (roughly 1 in 16 Americans) as of 2009.

The MSA is further subdivided into four metropolitan divisions:

  • The 23-county metropolitan area includes ten counties in New York State (those coinciding with the five boroughs of New York City;
  • The two counties of Long Island, and three counties in the lower Hudson Valley;
  • 12 counties in Northern and Central New Jersey;
  • and one county in northeastern Pennsylvania.

 The Edison-New Brunswick, NJ “MSA” includes Middlesex, Monmouth, Somerset and Ocean Counties (with an estimated population of a little over 2.3 million people).

 The Newark-Union NJ “MSA includes Union, Morris, Sussex, and Hunterdon counties in NJ, AND Pike County in PA (with a little over 2.1 million people).

As you can see, both MSA sub-divisions include towns in each county that have had, and probably will continue to have, a higher amount of short sales and foreclosures than others, thereby skewing the reported numbers again.

 Additionally, according to Case-Schiller, home prices as of November 2010 (the most recent data available) in the New York MSA averaged about $170,000.   According to their historical data, that price is just about where we were in May 2004 (right before the boom began and just about where the pundits said we would be in 2010).  They were at $175,000 both in August 2009 and August 2010.  The seasonally adjusted average home sales prices have fluctuated between $170 and $175K since March 2009 !!! 

Even taken at face value, this doesn’t tell me that there is a marked decline in the area, just a stabilization of the area sales prices since 2009.  However, anyone who lives in the  “metropolitan areas” of this MSA knows that $170,000 NOT an accurate price point for any of the “commuter hubs”. 

Compare the above to the following randomly selected MSA’s (according to Case-Schiller historical data) as of November 2010:

  •  Florida-Miami is at the same level as December 2002 levels;
  • Florida-Tampa is at the same levels as January 2003 levels;
  • Las Vegas is at November 1999 levels;
  • Denver is at May 2004 levels
  • Phoenix is at June 2000 levels
  • Los Angeles is at November 2003 levels

 Now look at the “local” market in one area I serve, (from Trulia Statistics):

Edison NJ.    

$170K in January 2000 and at $250K in January 2011. (representing ALL property types over a 10 year period.) Graph shows Edison vs zip 08820 (a local market in Edison)

  According to the Middlesex County MLS (a very accurate way of recording actual sales in an area), Edison overall sales statistics for single family homes only were:

Comparing January 1 through December 31 2009 vs 2010

Average sales price:  $395,670 (2009) vs $408,830 (2010) a 3.3% increase !

 In 08820 (the very local market) during the same period:

Average sales price: $494,751 (2009 with 224 sales) vs. $509,468 (2010 with 207 sales), also about a 3% increase, year vs year.

As you can see “national averages” have nothing to do with local market trends. 

Do I think we have seen the end of this downward trend on a national basis, no not really. However, as Real Estate professionals, we have to keep close tabs on our “local markets”.  We must disseminate information about those local markets to the public, so they don’t believe everything they read and hear in the media is pure fact. It’s bad for our national economy and bad for business.