SENDING OUT AN S.O.S.

In the Philadelphia area*, there are fewer “distressed” sales than in many of the horror story markets that highlight national news.  For example, the California Association of Realtors^® announced that 54% of sold units in the state of California in January 2011 were distressed sales.  In the Philadelphia area* for January 2011, the figure was 21% of closed resale units.
What is a “distressed” sale?  There are two kinds:  a foreclosure, called an REO (Real Estate Owned by a bank); or a short sale.  Until 2009, it was difficult to track distressed statistics for the Philadelphia area* because there wasn’t a “field” in the MLS printout to place the information.  With the advent and use of the “short sale” and the “REO” fields in mid-2009, the data is easier to track.
A market like California, with more than half of the sales generated by distressed properties, is “sending out an SOS.”  Locally, agents need to know how many properties are “distressed” in the area where there is a listing that they might get, or where their buyer might place an offer.  In a subdivision where 1 in 20 properties is distressed, the distressed property will not affect market value . . . but, in a subdivision where 2 of the last 4 sales were distressed, that can change the game.
Here are some numbers to think about for the Philadelphia area* counties:
In Berks County (PA) in 2010, 14% of residential re-sales were distressed
In Bucks County (PA) in 2010, 12% of residential re-sales were distressed
In Chester County (PA) in 2010, 9% of residential re-sales were distressed
In Delaware County (PA) in 2010, 16% of residential re-sales were distressed
In Montgomery County (PA) in 2010, 10% of residential re-sales were distressed
In Philadelphia County in 2010, 22% of residential re-sales were distressed
In Burlington County (NJ) in 2010, 17% of residential re-sales were distressed
In Camden County (NJ) in 2010, 20% of residential re-sales were distressed
In Gloucester County (NJ) in 2010, 18% of residential re-sales were distressed
In Mercer County (NJ) in 2010, 19% of residential re-sales were distressed
Overall, the average was 16% (15% in PA, 18% in NJ)

For Californians, the good news was that the percentage of distressed properties in January 2011 was lower than January 2010.  In most Philadelphia markets, the percentage of distressed properties went up slightly – it remains to be seen whether that “uptick” was a true reflection of the market, or if it was just a reflection of more licensees learning about the new fields in TREND during the year . . .

STATISTICS
For the Philadelphia area*, comparing February 2011 to February 2010:

• Average price ($232K) was down slightly more than 1%:  down 1% in PA ($238K), and down 2% in NJ ($216K)
• Average days on market for closed properties went up 9% in PA (to 102 days) and 25% in NJ (to 121 days)
• Closed dollar volume (more than $550 million) was down only 4% (but still, the lowest total in February 2001)
• Closed units (almost 2,400) decreased 3%: down slightly less that 3% in PA, and down slightly more than 3% in NJ
• Pending properties decreased 25%:  down 28% in PA, and down 18% in NJ

Inventory was remains very high:  PA counties vary between 7-9 months of inventory; while, with the exception of Mercer County (with almost 10 months inventory), other NJ counties in the Philadelphia area* have more than one year of inventory!

REALITY CHECK
Distressed sales will play a part in the local market in the next year:  if they remain between 10%-20% of all re-sales, they should not affect average prices considerably.
Inventory is a more troublesome trend:  if it remains near/above double-digit levels for the area, average prices will suffer.
NAR President Ron Phipps recently said that, “you have to be where the market is, not where it was!”  Keep in mind that “all real estate is local”:  check inventory and distressed sales in your area and keep buyer and seller clients informed!

Courtesy of:

Charles V.Cosgrove, Jr.

Owner/Director, Mr. Chips School of Real Estate (RE-001036)