Sales of bank-owned properties in some of the more affluent corners of the Bay State may be powering this year’s housing price recovery, according to a Banker & Tradesman analysis of bank-owned residential properties, or REOs.
An analysis of REO sales data provided by The Warren Group, publisher of Banker & Tradesman, reveals that while the number of single-family REO sales is down so far this year compared to last, to 1,036 from 1,201, the median price of such sales has increased substantially.
Single-family REO sales through May had a median price of $145,000, a 25 percent jump over the $116,000 median price single-family REOs garnered over the same period last year.
At the same time, the median price for non-REO single-family sales increased only 5 percent, to $295,000 through May from $281,500 through May of 2009, according to The Warren Group. Median sales prices increased 7.5 percent overall – meaning the leap in REO prices is a big part of what’s boosting prices in general.
The same sales/price pattern repeated itself with condominiums, according to The Warren Group. REO condo sales fell 35 percent, while median prices jumped 16 percent.
Suburban ‘Strength’
But why are REO prices increasing?
“I’ll tell you exactly why,” said Gerry Roy, of Royal Real Estate Service in Chicopee, a company that said it has done hundreds of REO deals in Western Massachusetts. He said starting about six months ago, he began getting more suburban listings.
“We’re probably about half and half [in terms of listings], half in the suburbs, half in the city still, and they are the ‘lost-my-job, just-can’t-afford-it-anymore scenarios,’” Roy said. “And with that comes going from $50,000 to $70,000 average sale price [on REOs] in the cities, to $150,000 to $250,000 in the suburbs.”
Linda Kody, broker/owner of Kody & Company in North Andover, agreed.
“We’re getting better inventory,” she said. “The properties that are being foreclosed on [now], it’s more A paper.”
The pattern of REO sales across the state seems to confirm Roy’s diagnosis. During the first five months of last year, Worcester, Dorchester and Brockton ranked first, second and third statewide, respectively, in total number of single-family REO sales.
Though each city remains high on the leaderboard for this year, the total number of single-family REO sales has dropped more than 45 percent in each city, according to The Warren Group data: To 71 from 132 in Worcester; to 54 from 110 in Dorchester; and to 57 from 104 in Brockton.
Meanwhile, some towns which had only one single-family REO sale at this time last year, have already had several this year, including towns like Holden (seven), Pembroke (seven), Longmeadow (five), and Waltham (five). Altogether, 23 Massachusetts communities which had no REO sales at all last year, have had at least one so far this year, including Wellsley (one), Needham (three) and West Tisbury (three).
Responsive Banks
Banks have done their part in responding to the market conditions, brokers say, increasing the pace of sales and helping to preserve value in some of the state’s stronger neighborhoods.
“Many of the lenders are trying to sustain values and sustain neighborhoods, so that the properties are in better condition and they’re getting top dollar for them,” said Kody. “Carpet, paint, appliances….if it’s in a neighborhood that would warrant it, they’re going in and repairing the property.”
Banks are also reacting more quickly to market conditions once they have a property back on their books.
“A lot of REOs are selling quicker, the banks are more aggressive with price drops and more likely to do them on a regular basis, every two to three weeks even,” said Peter Ruffini, broker owner at Options 1 5 3 Mullen & Partners in Plymouth. Previously, Ruffini said lenders would routinely leave prices unchanged for months at a time.
Though bank’s responsiveness is helping to get REOs back to market quickly, brokers warn they haven’t seen a huge increase in the flow of listings, with banks still slowly working though loan modifications and foreclosure proceedings.
With lots more REOs yet to hit the market, and more affluent towns beginning to be affected, the price stabilization the market has seen thus far could be shaky, sources told Banker & Tradesman.
“In my opinion, we’re setting up the same scenario as subprime,” in which buyers had little stake in the properties they purchased, said Roy.
Though today’s borrowers have to pass through tougher hurdles to qualify for a loan, during the subprime lending boom, “[Sellers] weren’t selling it to you at 3.5 percent [down payment] and giving you $8,000 back [in federal incentives], and maybe city money besides,” Roy said. “[Current REO sales] will be something that’s easy to walk away from [if the economy stays depressed], and fuel for the foreclosure market two and three years out.”
