San Diego Housing Bubble News and Analysis

Wouldn't most of the sales you mentioned still be recorded down at the county?

Sure, but aren't sales figures taken from the MLS or does Data Quick go right to the county records and count them by hand ?

Has anyone used the public sales records to prove the existence of these large institutional buyers ?

I haven't done a thorough check of non-MLS sales, but Redfin does show sales that are not MLS. I have come across individual properties that showed sales on Redfin that were never MLS listed. I just thought it was courthouse steps sales. Often, I then see later it listed, so that's why I just thought it was on the steps.

I know of groups of rehab guy's pooling money and buying up trashed REO homes, fixing and flipping,

They are actually making money these days, don’t know if it will last.

A guy who got laid off from my company has been doing this for about a year now, he is not looking for work anymore, that all I can say.

Dataquick takes sales from County records. So the only way "shadow" sales would be happening and people not know about it would be if the new entity didn't record the deed.

But ask yourself, even if a group did a bulk REO buys they are doing it to sell the homes so that supply is coming on market anyways.

Non-issue.

I know how to do this but do not have the time. One could track weekly the sales on MLS. Then a month or two later reference http://users.ixpres.com/~gtriphan/ in order compare. It would be most helpful and I bet a person could make a buck on the data.

That's a good point, ED. What would the investors do w/the bulk REO they acquire? I imagine they will eventually list to sell. Maybe they will rent some of them out. That will indirectly cause more rentals on the market and consequently lower rents. This might actually be a win-win-win for everyone. They get a deal, sell, still at a lower price and/or rent and cause rents to be lower.

If only one could connect the dots in a straight line....but of course the line zigs and zags in random directions.

Actually when a private party makes a purchase they do not have to record it. It is simply thier own choice.

I don't think it's a non-issue. Maybe they are going to resell it, or maybe not, or maybe they will just trickle it out, etc. Regardless, if there are shadow sales offsetting shadow inventory I think that's significant.

So it seems like the consensus here is that bulk buyers wouldn't have to record the sale, and there may indeed be shadow sales taking place?

It would be cool if we could get some data on this but I don't have the first idea how...

rich

"Shadow sales" would only matter if the inventory isn't coming back on market. If they are selling the homes off the MLS they are still taking out buyers. If you find a bulk sale where they are renting them out that would be news but that is a very inefficient (per unit cost of maintenance, insurance, filling vacancies, etc are all much higher for SFH) way of being in the rental market and I haven't heard of any institutional desire for doing that outside of the GSEs talking about renting their REOs back to the owners in some states.

The consensus? I see it mentioned once and I disagree completely. It isn't legally required you record your deed (though anyone financing your purchase can require you to do so) you would do so for your legal protection. Since the bulk acquirer isn't living in the property (which, like recording, provides construtive notice) then they are subject to losing the property through fraud or mistakes.

For example, lets say Bulk seller sells a property to Buyer A and buyer A doesn't take possession and doesn't record the deed. Then due to a clerical error Bulk seller sells the property again to Buyer B.. buyer B records the deed. Buyer B owns that property now (yes, bulk seller would owe buyer A the money but owing and getting money are two different things).

It would be a stupid risk to take with no reward for the buyer. You record your deed for your legal protection.

I agree the data would be hard to find, because it doesn't exist. These sales either exists and they aren't recording it.. and that is happening in sufficient volume to matter to the marketplace. Not very likely at all. Or these sales exist and they are recording the deeds in which case Dataquick picks them up in their numbers. Watching the difference between these two charts:
http://www.dqnews.com/Charts/Monthly-Cha...

And:
http://www.dqnews.com/Charts/Monthly-Cha...

Would give you the difference between MLS and non-MLS sales (the 2nd chart should always be higher). There is a timing issue between those two charts since the first goes off when the MLS says a property is sold and the second goes off when the deed is recorded..

I really think its a non-issue though and have yet to hear any compelling reasons to the contrary. In my humble market watching opinion the only "shadow sales" lost by current metrics are those 3rd party sales at the courthouse steps in which the investor plans on renting it out or the house was bought by a person planning on living in the home. In this scenario a trustee deed would be recorded and it wouldn't be marked as a sale by DQ (it wasnt on the MLS so obviously the CAR wouldnt pick up the sale eitehr).

What you say about the deeds makes sense. If this is the case, then it is indeed a non-issue because we just aren't seeing that many sales.

However I think you are too quick to dismiss the importance of a property passing from weak hands (banks) to strong hands (investors who may keep them off the market for a while). This may or may not be happening, but if it were, it would not be a "non-issue."

As to whether it is happening... I agree that there doesn't seem to be evidence of it, but I don't really know enough about the procedural aspects of bulk buying to have an opinion of my own.

Rich

I believe these "shadow sales" are indeed taking place in fairly large numbers, and that some investigative work needs to be done.

There are many powerful interests who want to see the banks made solvent. It's obvious that the massive interventions we've seen so far were intended to buy some extra time, not solve the problem. It would be perfectly logical if the govt/banks were working to off-load much of this inventory at a higher price -- currently caused by the massive supply/demand distortions of the credits, low rates, withholding of inventory, etc.

So here's one I know about. The infamous Bressi Ranch models purchased by Model Home Partners LLC (a bunch of LA Lawyers) bought a bunch of them all specutively putting 20% and walked away when they were severely underwater. A friend of mine was about to rent one (he already had given a prop mgmnt company a deposit) when he told me and I said you're nuts, donnt you know there is an auction next week on them. Turns out they were financed by La Jolla Bank. They were going to negotiate with him and sell it to him directly. They wanted 600K and I told him a great deal would be 550K. He was negotiating directly with the bank when they said forget it, we are selling them all to one investor. They are starting to come on the market now. The one he was looking at was listed at 650 to 699K and sold immendaitely.

Granted this is a small local bank but its a real example of a bulk sale (I think there were about 10 of them). My guess is they make $150K to $200K a piece on them.

I thought all real estate transaction must be recorded to update the property tax records and title insurance requires it as well. When is it right to not record?

Got any data to support your opinion?

Just some pretty reliable anecdotal stuff right now, but am working on hard data.

As for Shadow Inventory, I believe the FDIC numbers tell a lot of the story. For Past Due and Nonaccrual Assets here are some of the numbers for "1-4 family residential properties" only, unless noted otherwise.

As of 6/30/09:
Past Due < 90 days: $68.2 Billion
Past Due > 90 days: $64.8 Billion
Nonaccrual Status: $83.5 Billion
Total: $216.5 Billion

As of 3/31/09:
Past Due < 90 days: $74.8 Billion
Past Due > 90 days: $56.3 Billion
Nonaccrual Status: $78.3 Billion
Total: $209.4 Billion

As of 12/31/08:
Past Due < 90 days: $79.2 Billion (Peak)
Past Due > 90 days: $44.9 Billion
Nonaccrual Status: $59.6 Billion
Total: $183.7 Billion

It appears banks have added $32.8 Billion in distressed properties. The Past Due > 90 days and Nonaccrual Status has greatly increased in two quarters. One might call that Shadow Inventory. Especially, those shown as Nonaccrual Status.

As for Shadow Sales, in order to sell properties at a discount, I would think you would have an charge-off for those properties.

As of 6/30/09 (Year to Date):
Net Charge Offs: $24.3 Billion

As of 3/31/09 (Year to Date):
Net Charge Offs: $10.7 Billion

As of 12/31/08 (Year to Date):
Net Charge Offs: $26.4 Billion

In six months, the banks have matched last year's charge-offs. The question of shadow sales would be how much of these properties sold other than thru MLS. Banks have $57.1 Billion in distressed or charge-off's. Total loans as of 6/30/09 is $2,685 Billion or 2.13% of all loan value.

One thing I did find new and interesting. FDIC has started to track restuctured loans. As of 6/30/09, $28.9 Billion of the loans were restructured. Principle reductions may have been shown in the charge offs.

Noncurent Loans to Loans:
As of 6/30/09: 5.52%
As of 3/31/09: 4.87%
As of 12/31/09: 3.8%

The Nonaccrual Status was 9.3 Billion when is started being tracked in 2001. It has grown to $83.5 Billion or 9 times. This is what I would consider as the definition 'Shadow Inventory'.

Source: http://www2.fdic.gov/SDI/SOB/

And, yes, that is the data link... 'SOB'
Statistics On Banking...
I prefer the other well know term.

Lucky In OC