This is a quick post looking at the impact of bank owned properties in the 2012 Maui Real Estate Market. Starting in 2009, bank owned properties (REOs) were an important force in Maui. On the negative side, bank owned properties were one of the bigger drivers of price decreases. Sellers had to adjust their prices to compete with the bank owned properties which frequently entered the market below comparable sales. On the positive side, REOs helped to provide some much needed inventory as conventional sellers waited on the sidelines hoping for improved market conditions. They also provided opportunity for buyers looking for values. In 2012, we saw the influence of bank owned properties decline in the Maui Real Estate market.
As you can see by the chart above, the volume of Bank Owned homes coming to the market came down significantly in 2012 from what we saw in 2011. There was a 39% drop in the number of REO homes coming on the market. There was a 61% drop in the number of REO condos that came on the market compared to 2011. Land is the only segment of the market where we saw more bank owned properties in 2012 than 2011. There was a modest increase of 8% more REO land listings than there were in 2011.
As you will see in the chart below, the decline in the total number of bank owned homes and condos coming on the market becomes more pronounced when you break 2011 and 2012 down into six month intervals.
The bank owned condo market has really dried up. The inventory went from 146 REO condos listed in the first half of 2011 to only 33 listed in the last half of 2012. That is a 77% reduction in new listings. The REO inventory for single family homes experienced a less drastic cut, but still decreased significantly through 2012. The 72 REO homes listed in the last half of 2012 is 51% lower than the 146 listed in the last half of 2011.
What should we expect for bank owned inventory in 2013? Early signs suggest that 2013 may see similar trends to 2012 with even fewer REOs. As of today, there have only been eight bank owned homes, four bank owned condos and one bank owned lot listed since January 1. Discussions with agents who list bank owned properties suggest that their pipelines are relatively dry. To be clear, that doesn’t mean that there aren’t any pre-foreclosure properties on Maui. In fact, if you look at sites that track potential foreclosure listings, there appear to be quite a few properties in the process of foreclosure around the island.
If there are lots of properties potentially facing foreclosure, why won’t we see lots of bank owned listings? The answer goes back a few years to when Hawaii passed legislation hoping to aid residents facing foreclosure. ACT 48 was designed to give home owners facing non judicial foreclosure an opportunity to go through mediation with the bank. The goal was to facilitate loan modifications. Unfortunately, well intended legislation can have unintended consequences. Almost all of the banks were wary of the uncertainty of the mediation process. Instead of agreeing to this new process, the majority of the banks opted to start handling their foreclosures judicially. This process is longer and more cumbersome for the lienholders, but it still was more of a known entity than the mediated non-judicial foreclosures. There were relatively few properties in the judicial foreclosure pipeline prior to ACT 48. Even then, it was usually a 14 month process from start to finish. With a much bigger supply of potential judicial foreclosures, the process appears to be taking considerably longer.
The longer process has also led some banks to be more proactive about short sales. Bank of America has a significant number of the delinquent mortgages on the island. They have been proactively encouraging some delinquent owners to participate in a cooperative short sale program that has cash incentives for move outs. More importantly, they are not pursuing the deficiency balance on the loans. That means the bank isn’t trying to recover all or even any of the balance between what is owed and the proceeds of the short sale.
What does this mean for buyers looking for that outstanding bank owned value coming on the market? Well, you may need to be really patient. Perhaps some of these judicial foreclosures will be resolved in the second half of the year. Others think 2014 is looking more likely for the next wave of bank owned properties. We frequently get inquiries about bank owned vacation rentals. They were a small percentage of the bank owned inventory even when the inventory of REOs was significantly larger. The bank owned vacation rental friendly condo is especially elusive in the current market. Buyers may want to readjust their expectations and focus on other types of inventory. While an overall shrinking inventory has meant fewer rock bottom prices, there are still good values to be had among the conventional and short sale properties. If you are a determined REO shopper, be prepared to act quickly and strongly when these properties come on the market. Well priced REOs are frequently drawing multiple offers and sales prices that can exceed asking price. Contact the Maui Real Estate Team if you are considering buying a home, condo pr piece of land on Maui in 2013. We would welcome the opportunity to sit down to discuss your real estate needs.