Backlog of short sales shrinking in local housing market

Short sales have left a lot of homeowners with long faces since the collapse of the housing market in 2008. But we’re beginning to see a lot more smiles these days in the local market as the backlog of short sales has declined substantially.

Let’s look at the big picture. In August we witnessed a steep decline in pending home sales, which often raises a warning flag because pending sales serve as a forward-looking indicator for sales volume the following month(s). When examining pending sales on Aug. 4, transactions in the eight zip codes encompassing Winter Park, Baldwin Park, College Park, Colonialtown and downtown Orlando were down considerably from August 2013, ranging anywhere from 12 percent in Baldwin Park (32814) to a high of 55 percent in Maitland (32751). That’s actually good news.

On the surface that would appear to be cause for concern. However, a closer look reveals pending short sales in the eight local zip codes (32789, 32792, 32751, 32801, 32803, 32804 and 32806) were down an astronomical 126 percent, largely because a massive amount of them were finally closed while a much smaller percentage became bank-owned.

On closer inspection, the numbers get even better. Of the 709 pending sales in those zip codes last August, nearly 44 percent or 310 were short sales. That number was down a mind-boggling 270 percent to only 137 on Aug. 4 while bank-owned properties stood at just 88. Short sales have dropped considerably because until recently pending short sales were typically under contract for anywhere from 6 to 24 months before closing, which created a huge backlog. Banks have streamlined the process so that many of the backlogged contracts have sold and newer contracts are closing in much less time, thereby reducing their numbers considerably and at a more rapid rate.

Even though distressed properties are on the decline, we shouldn’t be satisfied until we get them down to or below 5 percent, a level we haven’t seen since 2007 when distressed properties accounted for only 3 percent of all existing home sales. Hopefully one day we’ll even see the percentage of distressed sales at .1 percent and .5 percent that existed in 2005 and 2006, respectively.

On a broader geographical scale in Central Florida, short sales accounted for only 33 percent of 6,658 pending sales listed on Aug. 13, compared with 67 percent on the books on the same date last year. Should the large majority close or become bank-owned, that’s some more good news.

Combine the decline in distressed properties with still very attractive mortgage interest rates, and a three to four-month supply of inventory of homes, and the prospects in the local real estate market look quite good as we move forward.

As the economy continues to gradually improve and the local real estate market continues to positively sort things out and overcome the economic challenges we’ve faced over the past six years, there is every reason to remain optimistic about the direction in which we’re headed.

Scott Hillman is president of Fannie Hillman + Associates, a 33-year-old Winter Park-based real estate company specializing in residential real estate sales and producer of The Hillman Report, a semiannual look at residential real estate in Orange and Seminole counties that can be viewed on the company’s website (fanniehillman.com) or by calling 407-644-1234 to request a copy.