Are banks skewing the real estate market?

Article Courtesy of The Miami Herald

By Monica Hatcher

July 25, 2009

South Florida home and condo prices appear to be bottoming out. Some say that banks are controlling the release of foreclosures -- the lowest-priced homes -- to the market as a way to shore up prices.

On the surface, South Florida's home prices appear to be bottoming out, but a dip in the number of bank-owned properties for sale is leading analysts to conclude that lenders may be slowing the flow of foreclosures to the market as a way of stanching further price declines.

Monthly numbers from the Florida Association of Realtors show that South Florida existing-home sales continued to rise in June, as bank-owned homes and short-sales attracted bargain hunters from across the country. Figures released Thursday showed single-family home sales were up by 54 percent in Miami-Dade and 35 percent in Broward, compared to last year.

Median single-family home prices were down again since June of last year, falling 28 percent in Miami-Dade and 33 percent in Broward. But they have strengthened from April prices. The median price is the point at which half the homes sold for more and half for less.

The apparent leveling out of prices is being attributed to two things: a shrinking number of distressed homes entering the market and a larger share of high-priced homes changing hands, according to real-estate analysts and brokers.

Condo sales were up in both counties, too -- by 19 percent in Miami-Dade and 58 percent in Broward. Median condo prices, however, fell by 49 percent in Miami-Dade to $141,000 from $275,600 the previous year and by 46 percent in Broward to $83,900 from $156,200 a year ago.

Over the past six months, however, intriguing trends have begun to emerge in the month-to-month numbers.

The median single-family home price in Miami-Dade has, in fact, risen for the past three months, climbing from $177,000 in April to $194,700 in May and $211,400 in June. In Broward, the median in April was $191,300, followed by $190,000 in May and $204,800 in June.

BENEATH THE SURFACE

On the condo front, the median price in Broward has bounced between $85,000 and $80,000 since January and between $149,000 and $140,000 in Miami-Dade, a trend that would appear to suggest prices may be hitting a bottom.

However, listings of bank-owned homes and short-sales -- in which a home is sold for less than the mortgage owed -- fell from 44 percent in May to 39 percent in June, according to Ron Shuffield, a Coral Gables-based real-estate analyst and president of Esslinger Wooten Maxwell Realtors.

And sales of these so-called distressed properties dropped from roughly 60 percent in May to 54 percent in June.

Brokers say fewer well-priced foreclosures on the market are now routinely sparking bidding wars. Bank-owned homes in hot condos and neighborhoods are going under contract within days.

Anthony Askowitz, a real-estate broker in Kendall, said his bank-owned listings had fallen from about 150 last June to just 37 today.

"I am getting less foreclosure listings, but, at the same, time, I am selling them so much faster. I can't replace them as fast as I am selling them,'' said Askowitz, adding that he had listed a unit in the Club at Brickell Bay at $174,900 on Thursday and received an all-cash offer the same day.

Lenders, some real-estate lawyers and analysts believe, may be behind the trend as they either inadvertently drag out the foreclosure process or hold back the release of foreclosures for sale to the public.

Either way, the smaller numbers could be curbing further price declines, since analysts say home prices will not recover until the high numbers of distressed properties are cleared from the market.

Lenders repossessed 756 homes in Miami-Dade in June, up from 434 in May, according to foreclosure tracking firm RealtyTrac. In Broward, they took back 1,365 homes last month and 738 in May. But properties don't necessarily hit the market immediately.

"There is less distressed inventory being distributed to brokers for sale,'' said Doug DeWitt, a Miami-based real-estate broker. "I think they are trying to establish a bottom by not flooding the market, which seems to have worked a little bit.''

Julian Dominguez, owner of Foreclosure Information Systems, a company that publishes reports about foreclosure auction sales in Miami-Dade, said he is seeing the hold-back firsthand.

"They are canceling a lot of sales at the auction. That's mainly because they don't want to take title,'' said Dominguez, who has been attending the now thrice-weekly auction sales.

Ross Toyne, a Miami-based lawyer who represents condo associations in disputes with lenders, said he thinks lenders are deliberately dragging their feet -- both in the foreclosure process and in bringing the properties to market for resale.

"They are doing themselves a favor. They're afraid they would have to drop the price not enormously, but ginormously to get the market to clear,'' Toyne said.

Condo associations have alleged that the feet-dragging is a ruse to avoid having to assume the maintenance cost of properties -- including association fees.

SPECULATIONS

Ken Thomas, a Miami-based banking analyst, said it all makes sense. Once a bank takes back a home at the end of the foreclosure process, it has to value the property at its current market value -- and take a hit to its bottom line. Some banks, he said, may be holding off that day of reckoning.

"Some of them simply can't afford to recognize the loss,'' Thomas said. He also said there was no rule or law requiring banks to immediately sell a property once it had been taken back through foreclosure.

Not everyone is convinced that's the case.

Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures, attributed any decrease in bank-owned inventory more to the inability of lenders to effectively manage the huge volume of homes being reclaimed through foreclosure. They don't have the manpower or know-how to handle the volume.

"To say banks have a devious, brilliant strategy for controlling the market is probably giving them more credit than they deserve,'' King said, adding that it may differ from lender to lender. "Maybe some are doing it for strategic reasons. When you digest so many of these assets so quickly, inevitably there will be some indigestion and you may not want to continue consuming at the same pace.''

But foreclosures certainly haven't been worked out of the system. Rising unemployment will only exacerbate the trend, analysts predict.

There are more than 750 auction sales scheduled for the first two weeks in August.

"We just put out our [foreclosure listing] book for August and it has 216 pages; normally, it's 170 pages long,'' Dominguez said.