This somewhat ties in with the question of how many distressed sales does it take to swing a market. If the average holding period for SFRs in one of these neighborhoods is 10 years then the number of sales in any given year would average 10% of the total. If that’s the average then the actual number for one of the down years in that 10-year cycle might be 70% or 80% of that, because the upswing years will compensate.
These economists talk about foreclosures stemming from these mortgage rests as running a certain percentage of the total number of homes. What they don’t talk about is that the number of distressed sellers doesn’t just include the bank-owned foreclosures; it also includes those borrowers who are smart enough to let go before they lose it all. If only 30% of the NODs get to foreclosure and 30% get cured without a sale that still means that foreclosures only comprise half of the must-sell-right-now inventory.
You can see how even if 1% of all homes get to the must-sell status those transactions will heavily influence the pricing for the other 7% that sell during that same time period. At 2% of the total (not annual) it’s all over – they’ll drive the market.
Between 01/2003 and 01/2006 there were over 118,000 sales through the MLS, and that doesn’t count the new home sales that didn’t go through the MLS. In addition to those buyers there were a ton of refinance transactions on properties purchased prior to that, probably most of which substantially increased the debted encumbrances on those homes. We’ve seen estimates that as many as 70% of the mortgage financing transactions (including refis) during that period involved ARMs and other non-conventional terms.
They aren’t all stressed to the breaking point, but then again they don’t have to be.
