Tuesday, September 1, 2009

Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in August 2009

According to the data I researched in the Middle Tennessee MLS (RealTracs) as of 9/1/2009, the following Market Statistics paint a troubling picture for the 3 main cities/towns in Rutherford County Tennessee:

Active Listings
  • Murfreesboro TN -109 out of 1,322 Active Listings (or 8.25%) are shown as Short Sale or Foreclosure listings.
  • Smyrna TN - 51 out of 389 Active Listings (or 13.11%) are shown as Short Sale or Foreclosure listings.
  • LaVergne (or La Vergne) TN - 59 out of 291 Active Listings (or 20.27%) are shown as Short Sale or Foreclosure listings.
Pending Sales
  • Murfreesboro TN -32 out of 242 Pending Sales (or 13.22%) are shown as Short Sale or Foreclosure listings.
  • Smyrna TN - 11 out of 60 Pending Sales (or 18.33%) are shown as Short Sale or Foreclosure listings.
  • LaVergne (or La Vergne) TN - 29 out of 61 Pending Sales (or 47.54%) are shown as Short Sale or Foreclosure listings.
As you can see in all the towns above the % of Short Sales and Foreclosures is high for both Active Listings and Pending Sales. However, the worst part is that when looked at as a percentage of Pending Sales the Short Sale and Foreclosure share of Pending Sales is relatively high when compared to percentage of Active Listings to the tune of 50%+. This means that regular (i.e. non Short Sale and Foreclosure) listings will have a difficult time selling as a large share of Pending Sales are lower priced distressed properties.

For Murfreesboro and Smyrna the % of Pending Sales that are Foreclosures and Short Sales remained about the same as last month, but for La Vergne the % increased from 34% to 47.54%. While the real estate markets in Murfreesboro TN and Smyrna TN are definitely hurting and prices are declining, the La Vergne real estate market is in really bad shape.

Prime Mortgages Make Up One Third of Foreclosure Actions

According to this Forbes.com article, Prime Mortgages Are Failing, between April and June of 2009 13% of all homeowners in the United States were either behind on their mortgage payments, or in foreclosure. If that is not bad enough news, the article goes on to state that while subprime (sub prime) ARM loan defaults decreased, the decrease was offset by large a large increase in the number of delinquent prime mortgages (that is mortgages to the most credit worthy borrowers who actually invested down payments, had verifiable jobs and excellent credit). The article quotes Jay Brinkmann, chief economist of the Mortgage Bankers Association (MBA), as stating "Prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime (sub prime) adjustable-rate loans." According to the article, the MBA defines delinquencies as those between 30 and 90 days past due. Homeowners beyond 90 days past due, or in foreclosure, are identified as seriously delinquent. The article blames increasing unemployment and declining property values (think underwater homeowners) as the main causes of this huge increase in prime mortgage foreclosure starts. According to the article, California, Florida, Arizona and Nevada continue to make up the largest % of foreclosures, but that % has decreased from 46% in the 1st quarter of 2009 to 44% in the 2nd quarter of 2009. The article states that Florida is in particularly bad shape with 12% of mortgages in the process of foreclosure, and at least 22.8% are delinquent. Also, according to the article, there was a major jump in Federal Housing Authority (FHA) foreclosures.

Here is my synopsis of the real estate market based on the information above and other information.
  • The most financially responsible borrowers (prime mortgagors) are hurting. Even large down payments are not enough to counter the huge price declines. More homeowners underwater = more foreclosures.
  • Foreclosures are increasing in general. This will cause more price declines.
  • While the "Fab 4" (California, Florida, Arizona and Nevada) are still the kingdoms of foreclosure and prices will surely continue to fall in those markets, the decrease in % of total foreclosures nationwide from 46% to 44% while overall foreclosures increased means that foreclosures in other states increased at a higher pace that the "Fab 4" states. This means prices will decline nearly everywhere.
  • More distressed homeowners will cause more people to try to rent out their homes. Until prices decline to a point where monthly rents exceed total monthly housing payments prices will continue to decline. Rampant foreclosures will make sure prices actually head below this normal equilibrium.
  • Government meddling (expanded FHA mortgages, tax credits, etc.) has not and will not work to save the real estate market. The market is correcting itself to sustainable levels. FHA mortgages are now failing at alarming rates. Tax payers will once again have to foot the bill for regulatory incompetence. It seems that very few people are stating the truth about the real estate market. That is that high housing prices are bad for people (especially lower income people) and high commercial real estate prices are bad for business, which is in turn bad for job growth. Also, real estate has never (until the last few years) been the driver of the economic bus. It has been the passenger, meaning that economic growth (and the resultant business, job and income growth) caused housing prices to increase and new construction to increase. Not the other way around. Any attempt to work in reverse logic = insanity.
Please be clear about my opinion. "The worst is yet to come." I have been saying this since early 2006 and I see no reason to change my outlook on the housing and commercial real estate markets.