Anyone that isn’t living under a rock knows that real estate sales are down.
One of the problems that we’ve had in the real estate market over the last couple of years is a huge oversupply of new construction homes. Builders were having phenomenal sales just a few years ago, and they kept buying up land to feed the demand. When their sales started dropping as the market slowed, they ended up with too much inventory and too much land.
The chart below shows the number of permits pulled through the Home Builder’s Association for single family homes by many of the St. Louis area’s larger builders over the last few years. Permits don’t always result in an actual home being built that same year, but do show the trend towards fewer home sales in the last few years.
| Builder |
2007 |
2006 |
2005 |
2004 |
| McBride |
457 |
511 |
585 |
614 |
| Jones |
364 |
334 |
530 |
386 |
| Whittaker |
83 |
216 |
243 |
234 |
| Vantage |
51 |
177 |
187 |
260 |
| Taylor Morley |
37 |
139 |
162 |
279 |
| TR Hughes |
89 |
122 |
223 |
294 |
| Mayer |
98 |
105 |
255 |
298 |
| Bower & Bailey |
114 |
94 |
68 |
59 |
| Fischer & Frichtel |
96 |
87 |
83 |
84 |
| Burkemper |
78 |
79 |
137 |
94 |
In order to fuel sales, many of the builder’s started offering hefty incentives to entice buyers. McBride offered $100,000 off many of their homes throughout much of 2007. Other builders offered to pay 6 months of mortgage payments so buyers could feel comfortable closing while they were still trying to sell their old homes.
The result of builders offering huge discount on new homes is that it devalues the nearby resale homes. I would be frustrated if I owned a 4 year old home with a similar model down the street when the builder decided to drop prices by $100,000. If that homeowner needed to sell, they just can’t compete against the new homes selling for so much less. AND, buyers seeing builders offering huge discounts either abandon the resale homes, or expect the same deals when they make an offer on a resale home.
The good news is that since the number of permits being pulled by builders for new homes is down, there should be less of an oversupply of new construction homes.
Hopefully that means that builders will stop slashing prices…which should help stabilize the market.
Email This Post
Every time you turn on the news, the media seems to be talking about the high rate of foreclosures and how the housing market is horrible.
What is the difference between a ‘foreclosure filing’ and a ‘bank owned property’?
Just about every news report cites the same source for their data, RealtyTrac. However, the way that RealtyTrac presents their data can be misleading.
RealtyTrac reports ‘Foreclosure Filings’.
There is a big difference between a foreclosure filing and a true foreclosure, or a house that has been taken back by the bank (REO property). There can be multiple filings per property which tends to inflate the numbers reported to the public.
What is the truth about the foreclosure rate?
In 2007, Missouri had 7,583 REO properties vs 21,911 ‘foreclosure filings’. So only 34.6% of the ‘foreclosures’ reported by the news are actually properties that have been taken back by a bank.
The foreclosure rates for Illinois were even lower with 6,145 REO properties but a massive 63,006 ‘foreclosure filings’ (9.75%).
Nationally, the US had 255,129 REO properties and 1,546,020 ‘foreclosure filings’ (16.5%).
***The RealtyTrac numbers reported reflect data through 9/1/07 since their 4th quarter data has not yet been released.***
How many people are really losing their homes?
If you take the REO figures and compare that to 2005 census data for the number of households in the US, the picture isn’t so scary.
-
Missouri: 0.84% of households have been reported as a ‘foreclosure filing’ but only 0.29% of households are REO properties
-
US: 1.24% of households have been reported as a ‘foreclosure filing’ but only 0.20% of households are REO properties
For the 3rd quarter of 2007, 74% of the ‘foreclosure filings’ occurred in 10 states. So 10 states are having a big foreclosure crisis, and the remaining 40 states (including Missouri and Illinois!) are not as dramatic.
AND, many of the properties being foreclosed on are owned by investors or were owned by homeowners that took money out of their homes during the ARM refinancing craze a few years ago.
-
Are there families losing their homes? Yes
-
Is it a tragedy? Yes
-
Are the foreclosure rates really higher than they have been in the past in our local market? Yes, but not as bad as the media paints the picture!
The reality is that the housing market IS slow, mostly because buyers are afraid to buy after listening to the news. The result of buyers sitting on the sidelines is an oversupply of inventory. Basic supply and demand principles then kick in. When there is a lot to choose from…for any product…prices come down. Sellers are forced to drop their prices if they want their home to be the one that sells soon rather than the one that sells in 6 or 8 months.
For more information on foreclosure filings in Missouri, click here.
Email This Post
PDF 
