The Impact Short Sales Have on the Housing Market

Abron Toure By Abron Toure, 25th Jun 2010 | Follow this author | RSS Feed
Posted in Wikinut>Money>Property

The effects Short Sales are having on the real estate market and the disproportionate impact they have on the economically vulnerable.

The Impact Short Sales Have on the Hawaiian Housing Market

Not sure if Hawaii is a microcosm of the Nation but what might be safe to say is the impact Short Sales are having on the Hawaiian Real Estate Market may be similar to those throughout the rest of the country.

The brief definition of a “Short Sales” is the sold price of a property does not equal or exceed the amount needed to payoff the indebtedness at the time of closing in order to give the new owner clear title. To correct the deficiencies the lien holders forgive portions of the debt and/or the seller pays out of pocket additional money to offset the shortage.

The impact on the seller can be quite devastating because often times the amount the bank forgives is converted to a tax liability and charged to the seller as income in the form of 1099.

There is also an effect on the neighborhood and the real estate market in general. These properties are marketed aggressively for quick sales and are often sold below cost. As a result they drive the prices and the value of the property on the street or in a given neighborhood down. The people most affected by this are folks of modest means. Sometimes actions of this sort cause a circular or snowball effect, leading to banks redlining an area as a “declining market”.

There has been a lot of debate about people who used poor judgment and took loans they were ill equipped to pay back but it has gone way beyond that. The short sale market is being strongly driven by the poor economy particularly high unemployment rates.

Below are some tables. The data is taken from the Honolulu Board of Realtors statistics. They show sales trends of properties on the Island of Oahu within a range of different price points and the effect short sales are having on condos and single family homes. The information clearly illustrates those most likely impacted by these types of losses are the economically vulnerable.

Condominium

The data in the above tables is timely, taken from a period six months to the date of writing this article. Condominium Tables 1, (Total number of Active Units for sale); Table 2, (Total Number of Units in escrow); and Table 3, (Total number of Units sold). They represent all condos currently for sale on the Island of Oahu. The trend is obvious. Those properties that would be more affordable are severely impacted. The lower income groups are being forced to give up their dreams of home ownership at a disproportionate rate than any others income group. The questions is does this supports the argument, people who most affected by the possibility of losing their home are those who took out loans they could ill afford or is the system setup to prey on the less fortunate.

Single Family Homes

The above tables show the same categories as the ones for Condos but instead are for Single Family Homes. The results are even more alarming than condos and there is a strong indication the problem is getting worse. If you compare Active properties for sale add them with those in Escrow the trend seems not to be slowing down but increasing. Active units for sales plus properties in Escrow are a strong indicator of sold numbers in the future.

It is generally frowned upon to setup programs to bailout those who are considered the most vulnerable in our society but the concern is. If a state thought to be very conservative when it comes to lending money for real estate investments such as Hawaii is having this type of problem one can only imagine what the national picture looks like.

Tags

1099, Active Sales, Banks, Condos, Debt, Declining Markets, Deficiency, Definition Of Short Sales, Economic Trends, Economically Vulnerable, Escrow, Hawaii Housing Trends, Hawaii Single Family Homes, Home Ownership, Lender, Lien Holder, Price Points, Real Estate, Real Estate Closing, Seller

Meet the author

author avatar Abron Toure
Abron Toure has a BA in Philosophy, Brandeis, a BS in Chemical Engineering, Northeastern, MS Administration, Boston University. worked for Raytheon, Lam Research and Tokyo Electron Limited.

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