Distressed sales constitute big chunk of Tampa real estate market

What percentage of today's home sales locally are "distressed sales?" By distressed we mean properties owned by the bank or being sold for less than mortgage value by delinquent homeowners.

You might be surprised by September's numbers: About a third of Hillsborough County's home sales are either bank sales or short sales. In Pinellas it's 22 percent, in Pasco 29 percent.

But you can pull more insights from the data: Distressed sales are clearly dragging down overall home prices. Bank sales, for example, collect only about two-thirds of what conventional sales do.

But for those 70 percent or so of homes that sell conventionally, prices have been, considering the times we're in, fairly decent.

I get the numbers from Home Encounter, a Tampa real estate consulting firm. Here's a copy of their latest "distressed sale report:" Download homeencounter_distressed.doc

I like Home Encounter's practice of measuring home values by price per square foot. It helps smooth out potential median price distortions created by a surge in sales of cheaper, smaller houses.

Mining deeper into the data, I noticed that Pasco County's short sales fetch 93 percent of the price of normal sales. That suggests that Pasco's prices are getting closer to hitting bottom. Home Encounter predicts that will happen as early as February 2009.

That doesn't mean prices will start rising again. It simply means that prices will flat line for a while. Prices can only drop so far. When you reach the point where homes are selling for their construction costs - and mortgages reach parity with rents - you've reached the turning point.

Home Encounter insists Hillsborogh prices won't bottom until 2010, and short sale prices offer a clue as to why. In Hillsborough, short sale properties sell for 84 percent of the price of conventional properties, suggesting the county hasn't felt the full drag from distressed sales.

Comments

[David]

I looked at Home encounters web site after you said they were a real estate consulting firm. They are clearly biased towards the real estate market turning, but I don't think anybody really thinks things will turn in early 2009, except them. They also hold real estate investing workshops, if your crazy enough. Check the headlines on their Learn link. They say "positive glimmer of hope in residential market" that was Jan 2008. In May they have two articles to prices increasing.
A global recession is just starting so to think prices can only drop so far because of construction costs, or mortgages and rents being on par sounds good, but doesn't hold true in this economy.

[James Thorner]

You might be right, David, but I like to cover all points of view and their analysis is different from the norm. Home Encounter uses price per square foot, which may be reaching bottom in some counties, whereas most analysis uses median price, which could have a more prolonged decline if people keep moving to smaller homes and it's reflected in pricing trends. In Pasco, if sellers in fact are ditching their homes for close to short sale prices (as Home Encounter suggests), that should accelerate a recovery.

[Tino]

If the stock market averages can go to the levels of late 1997, I do not see why the real estate market cannot do the same thing.

Wait until pension plans start announcing that payouts for retirees will be cut. THEN you'll see real estate prices plunge.

Oh, in late 1997 Tampa home prices were 50% of what they are now.

[James Thorner]

You'd better HOPE prices don't return to 1997. That would signify a depression, make no mistake about it. At a certain point, mortgages will be cheapar than rents and the housing market will self correct shy of such a plunge. That's my opinion anyway.

[SoldierRenter]

I've been seriously looking for the last three months and while their is definitely a drop in prices, it is still much cheaper to rent. A 4/3/3 in Riverview is 1350-1850 to rent. Buying the same home, starting at 300k is about 2300-2400 a month. It's getting closer. I do appreciate you present multiple opinions from various sources. If more media would do that in the paper, perhaps readership would increase. If you decide to quote the wunderboy Fishkind, remember to include some actually correct economists like Nouriel Roubini who showed with facts what was going to happen.

[Tino]

No, in that scenario, mortgages can stay cheaper than rents. People will take on mortgages only if 1) they have the cash to buy the house outright, or 2) they come up with the huge down payment (25% or more) that will be required.

Why is it not a depression when stocks fall 50%, while it is when houses fall 50%?

[Fuzzy Bear]

Why is it not a depression when stocks fall 50%, while it is when houses fall 50%?

Tino: The true definition of a depression is when both of us are out of work. A recession is when I am out of work, but you are still working.

:)

[Fuzzy Bear]

At a certain point, mortgages will be cheapar than rents and the housing market will self correct shy of such a plunge.

James, I agree with what you mentioned in the above sentance. However, we are not even close to that point in the Tampa Bay area and we still have a ways to go.

[Tino]

The price for new Channelside condos has been determined: $92 per square foot.

http://www.bizjournals.com/tampabay/stories/2008/10/13/daily36.html?ana=from_rss