Many in the real estate industry believe there is a listing shortage, but a close look at the numbers suggests buyers in most markets are purchasing homes in increasingly larger volumes—even if some of those sales involve off-market homes not listed for sale.
In July there was a 5.1-month supply of unsold existing homes, unchanged from June but down from a 6.3-month supply in July 2012, according to the National Association of Realtors (NAR). But despite the lower inventory, the volume of home sales continues to increase.
“Existing-home sales,” NAR reported, “have stayed well above year-ago levels for the past two years, while the median price shows seven straight months of double-digit year-over-year increases.”
In most businesses, everyone is elated when sales increase. For those in real estate, more sales equal more opportunities to generate transaction commissions, which is a good thing. And yet, the real estate community is somehow concerned when sales have been increasing month after month for nearly two years and prices are 11 percent higher than a year ago.
“The robust housing market recovery is occurring in spite of tight access to credit and limited inventory,” said NARChief Economist Lawrence Yun back in May of the April numbers. “Without these frictions, existing-home sales easily would be well above the 5-million unit pace.”
It turns out home sales did exceed that 5 million pace the very next month, in May, as well as in June and July, according to NAR—even with the frictions still in place.
If unlisted sales are included, the sales numbers are even higher. RealtyTrac sales data—which is sourced from public sales deeds and includes sales of unlisted properties—shows existing-home sales have exceeded the 5 million annualized mark for the past 10 months. In July, RealtyTrac data shows annualized sales reached as high as 5.5 million, up 4 percent from the previous month and up 11 percent from a year ago.
Similar to NAR statistics, the RealtyTrac numbers include residential single-family homes, condominiums, townhomes, and co-ops but do not include multifamily homes or commercial property. And the RealtyTrac
numbers only include arms-length transactions, excluding transfers back to a lender as part of a foreclosure action.
But the RealtyTrac numbers also include off-market transactions such as foreclosure auction sales to third-party buyers, typically investors paying all-cash for a property that is not listed on the local multiple listing service (MLS). These are the types of transactions that are increasing at the fastest rate. Specifically, foreclosure auction sales to third parties increased 133 percent in the first six months of 2013 compared to the same time period in 2012.
But it’s not just off-market foreclosure auctions that account for the rise in sales despite a lack of listing inventory. Buyers and their real estate brokers are getting creative in buying off-market inventory in other ways as well. These creative buyers and brokers are contacting distressed homeowners and other potentially motivated sellers to see if they want to sell even if they have not yet listed for sale. They’re finding homeowners who are about to list through word of mouth or social media, and they’re persistently reaching out to banks—the most success comes when dealing with smaller local banks—that have foreclosure inventory not yet listed for sale.
It’s the last category of unlisted bank-owned homes that may prove to be the biggest challenge for housing going forward. As of the second quarter, the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac reported a combined total of 183,381 real estate owned (REO) homes, according to the Calculated Risk blog. RealtyTrac data shows total REO inventory nationwide at 515,593 as of the end of July.
Those half a million REOs nationwide represent a 12-month supply at the current sales pace of REO properties, which was about 135,000 sales in the second quarter.
Markets with the most REO inventory were Miami (29,829), Chicago (27,020), Phoenix (20,160), Atlanta (20,141), and Detroit (18,622). Miami REO inventory represents an estimated 20-month supply at the current sales pace there, while REO inventory in Chicago, Phoenix, and Atlanta represents an estimated 10-month supply, and REO inventory in Detroit represents an estimated 11-month supply.
Many of these REOs are not listed for sale yet and are being listed at a painstakingly slow pace from the perspective of buyers who are hungry for more inventory to purchase. Still, the presence of this unlisted REO inventory should give buyers hope that they will find a property (or properties) to purchase, provided they are willing to be creative and patient in their search.
Daren Blomquist is a VP with RealtyTrac. He is directly responsible for the creation of the company’s U.S. foreclosure market and sales reports, which are cited by thousands of media outlets and industry bodies nationwide.