Headlines – Week of September 30, 2012

October 10, 2012

Declines in Shadow Inventory Foreshadow Rise in Prices

According to the financial information services company CoreLogic, current residential shadow inventory fell to 2.3 million units as of July 2012, representing a supply of six months. The information was published in the company’s most recent Shadow Inventory report.

This was a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units, which is approximately the same level the country was experiencing in March 2009. Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.

Highlights of the report:

As of July 2012, shadow inventory fell to 2.3 million units or six-months’ supply and represented just over three-fourths of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.

Of the 2.3 million properties currently in the shadow inventory, 1 million units are seriously delinquent (2.9 months’ supply), 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).

The dollar volume of shadow inventory was $382 billion as of July 2012, down from $397 billion a year ago and $385 billion last month.

Serious delinquencies, which are the main driver of the shadow inventory, declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).

As of July 2012, Florida, California, Illinois, New York and New Jersey make up 45 percent of all distressed properties in the country.

Population Growth Rate ‘Fueling’ South Florida’s Latest Condo Boom

According to a new report from the Federal Reserve Bank of Atlanta, a “significant” increase in the growth pace of Florida’s population is contributing to the wave of newly proposed condo units. 72 towers with 10,500 units are slated to be developed in the tricounty South Florida region of Miami-Dade, Broward, and Palm Beach.

The bank’s EconSouth Third Quarter 2012 report believes that some of the recent and projected condominium construction in Miami is a result of renewed in-migration to Florida. After experiencing a dramatic slowdown in population growth following the recession (down to about 140 people a day), Florida is seeing significant growth again of about 700 net new residents a day.

According to the report, the resurgence in Florida’s population growth has put the state on pace to surpass 20 million people by 2014, and in the process replace New York as the third most populous state in the nation behind California and Texas,.

The big question posed by the report is whether the changes in construction financing as a result of the crash are sufficient to prevent a repeat of a similar crash.

Highlights from the report:

Nearly 150 cranes “filled” the South Florida skyline at the height of the last condo boom.

As of Sept. 30, 2012, one new condo tower has already been completed in the tricounty region and 11 other high-rises are under construction as the post-crash development era gains momentum, according to a recent report by CondoVultures.com.

Developers have “sold” about 18 percent of the 10,500 newly proposed condo and condo-hotel units expected to be constructed in the coastal South Florida region through the third quarter of 2012.

A majority of the newly proposed condo units are not expected to be completed until 2014 when the unsold developer inventory from South Florida’s last real estate boom and bust is projected to be sold, according to the Proposed Condo Projects list from the licensed Florida brokerage CVR Realty™.

Fueled by investors primarily from overseas, less than 3,400 new condo units remain unsold from a supply of nearly 49,000 units created since 2003 in South Florida’s seven largest coastal markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island as of June 30, 2012.

To overcome the obvious financing hurdle, most of the newly proposed projects are requiring prospective buyers to commit to deposits – to be paid in phases – of as much as 80 percent of the preconstruction contract price. This is a dramatic change from the most recent South Florida condo boom, preconstruction buyers were generally asked for deposits of about 20 percent. For example, a buyer may bring anywhere from 30 percent to 80 percent to the table and then pay in increments as the building moves through the development process. The developer brings 20 percent to the table.

Foreclosure Filings Spike in South Florida Region

According to a new report from CondoVultures.com, lenders initiated more than 13,200 foreclosure actions in the tricounty South Florida region in the third quarter of 2012, representing a 36 percent surge in filings on a year-over-year basis compared to the same July through September period in 2011.

For the year, lenders have filed nearly 35,700 notices of default – the first step in the repossession process – in the first nine months of 2012 in Miami-Dade, Broward, and Palm Beach counties after filing less than 24,000 actions during the same January through September period in 2011.

Despite the spike in South Florida foreclosure actions in the first nine months of this year, the 2012 total number of filings initiated in the region is down compared to the same nine-month period in previous years when nearly 49,000 actions were filed in 2010 and nearly 75,500 actions were filed in 2009, based on filings with the Clerks of the Court for each respective county.

According to the report, lenders are stepping up their foreclosure efforts South Florida some two years after the ‘robo-signer’ controversy first surfaced late in the third quarter of 2010.

Barring some dramatic change, the peak of the foreclosure filing activity in South Florida appears to have occurred in 2009 when nearly 100,000 actions were initiated in Miami-Dade, Broward, and Palm Beach counties.

Compare this to 2012 where the South Florida region is on pace to experience more than 47,500 actions based on the filing activity in the first nine months of the year.

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