by Calculated Risk on 10/09/2007 10:10:00 PM

My friend Ramsey Su sent me an update tonight:

This is the 3rd San Diego REO auction of its kind in 5 months, 4th, if you count the DHI auction by the same auctioneer. Fortunately, of the 83 properties, only 7 were not previously listed in the MLS so this is an easy batch of properties to research.

I noted yesterday that unlisted REOs are one of the reasons the reported inventory level is currently too low. In this case, over 90% of the REOs were listed.

REOs are now an integral part of the real estate market. Appraisals have come down to earth and REO brokers are selling properties in record volume, though not matching the pace of acquisitions.
...
Similar to the homebuilders, as the REOs force the price down, it "impairs" the neighborhood and homeowners in default are even more likely to be foreclosed upon now.
...
"Previously Valued To"
REDC abandoned previous practice of using the last sold price as their "Previously Valued To" price. I use available tax record and recreated that value. It appears the last average list price of these properties is 81.4% of the last sold price.

Lenders are now aggressively cutting prices on REOs. The average LIST price is almost 20% off the previous selling price! Ouch. Ramsey also notes that many of these homes were previously purchased with 100% LTV, so the homeowners were substantially underwater and workouts were near impossible.

If someone is thinking the lenders are working down the REO inventory in San Diego, Ramsey Su offers the following graph:

Click on graph for larger image.

This graph shows:
NODs: Notice of Default,
NOTs: Notice of Trustee’s sale,
and
REOs: Real Estate Owned by the Lender.

After a NOD is filed, the lender must wait 3 months before filing a NOT. Then the foreclosure sale happens 3 weeks later. Ramsey has shifted the graph to account for these lags.

The graph of NODs shows where NOTs and REOs will go over the next 3 months.

Ramsey adds this comment:

719 REOs in San Diego during the last 4 weeks, comparing to just 1,239 sales reported so far by the MLS for September, are we going to see over 50% REO prevalence next quarter?

It's about to get ugly.