Mark Twain once penned: “A lie can travel halfway around the world while the truth is putting on its shoes.” A half-truth probably goes even faster.
It seems almost daily we hear that foreclosure rates are soaring throughout the country as the effects of shifts in both housing and mortgage industries continue to be felt. But if you dig deeper than the headlines and sound bites, you might find that another phrase attributed Mark Twain would be even more appropriate: Reports of the demise of the housing industry are greatly exaggerated.
In order to understand how exaggerated, we need to understand exactly where such reports originate.
Most media reporters rely upon RealtyTrac, a real estate data aggregator that regularly reports various numbers relevant to the housing industry. RealtyTrac data is accessible and seemingly straightforward.
Data, however, are only as good as the methods used to collect them. And there’s where the problem begins. Housing data is usually collected at the county level. Specifically, foreclosures follow a procedure that requires filing paperwork with the county recording offices. There is no single system or procedure followed by each county. There are 3,140 counties in the United States and almost as many procedures which have to be followed in order to foreclose on a single property.
Also adding to the problem is that most foreclosures involve more than one bank, so in addition to multiple filings due to different steps in the foreclosure process, there may be up to as many as 5 entities making those filings, including HOA’s, 2nd, 3rd, & 4th lien-holders. It should be noted that, in some neighborhoods, there can be as many as 3 Home Owners’ Associations for a single unit.
In addition to requiring different filing procedures, which can include multiple “filings” for a single property, counties track their filings differently. Many are automated and digital, but many are still pretty much a paper, copy machine and microfiche. This means that one county might have real-time data, where another country might not be reporting their filings for 3 to 6 months after they are made.
The upshot of all this is that gaining a clear picture of exactly how many properties are really foreclosed is not as easy as it might seem at first. Up until late 2007, RealtyTrac was using the number of filings to count foreclosures. When they started using property addresses as part of their data collection, the effect was to reduce foreclosure counts by 20-30%. In other words, for most of 2007, the foreclosure rates that were reported in the media were inflated by at least 20-30%.
But even after adjusting for the multiple filings per property, the numbers are exaggerated. Foreclosures take time. The process can take 90 to 120 days. During that time, things can happen, including a buyer might be found. So some filings can be made that never end in a foreclosure.
RealtyTrac is reporting the number of properties on which foreclosure proceedings have begun, not the number of properties that are foreclosed.
Of course, none of this makes glamorous or sexy headlines. Doom and gloom sell papers and raise ratings. With the advent of the Internet, media outlets face a competitive market like they have never seen and content has been sacrificed for sensation. So rather than responsibly digging into the deeper story and helping consumers understand what different numbers really mean, many (not all) media reports remain negative.
This is why the savvy investor doesn’t pay attention to the headlines. According to
Andrew Waite, in the January-February 2008 issue of Personal Real Estate Investor, the picture is not nearly as bleak as one might guess from the local evening news in your hometown. After examining the data and the ways in which the data is collected and counted, Waite asserts that as of 12/06/07, .078% of all homes in the U.S. had gone into “absolute foreclosure” in 2007. Less than 1%. Hardly a horrific crisis.
So if the data on foreclosures is difficult to follow and often reported poorly, what can the savvy Real Estate Investor do to understand when is a good time to invest and when is a good time to sell?
Probably the most important statistic to watch is population growth. The relationship between housing and population is an obvious and natural one. Currently in Clark County, we have a housing glut. This is due to many factors, including the recent shifts to stricter mortgage qualification requirements, the rise of bank-owned properties and fear-mongering that misleads both buyers and sellers from following more rational courses in pricing and buying/selling decisions.
These factors will adjust under the pressure of the coming population growth.
“The only action necessary to change the market is to change our expectations. We have been and will most likely remain the envy of the country for one reason alone … we create jobs. Employment is the engine that drives the economy and for the past 20 years or so, we’ve had the most powerful engine in the race.” – Patrick Egger, Understanding the Las Vegas MarketplaceLas Vegas is growing and is expected to grow by 50% in the next 12 years. This means the demand for housing will be huge. The current glut, and its suppression of prices, will not last.
Doom and gloom may sell papers and raise ratings, but when considering an investment like real estate, facts are more likely to increase profits than rumors.
Understanding a local market requires a local source of knowledge. The role of the local Realtor® can be much more valuable than the local newscaster. Our jobs as Realtors® are to keep abreast of the local economy neighborhood by neighborhood.
The Dulcie Crawford Group has accumulated a lot of knowledge about local economies and we are keeping up with the many changes current conditions are creating. Please feel free to ask us anything that will help you better understand how to reach your goals in the current market. We will be happy to help.
