REOs Trend Down, Other Inventory Bounces Up


The nations single-family REO inventory declined once again during the third quarter albeit at a slower pace than in previous quarters, confirming a trend economists expect to persist in the future.

Overall, REO was down for the twelfth consecutive quarter, as more properties are being sold in the states where regulatory compliance has slowed down the foreclosure processing-to-REO transition, according to Calculated Risk.

Both Fannie Mae and Freddie Mac reportedslight increases last quarterreflecting modest growth in acquisitions mainly in judicial foreclosure states and declines in dispositions that housing economist Tom Lawler attributes at least in part to changing market conditions.

In its 3Q SEC filing, Fannie reported REO inventory increased to nearly 101,000 single-family properties, up from roughly 97,000 at the end of 2Q. Freddies REO inventory exceeded 47,000 in 3Q, up from 44,600 at the end of 2Q.

Similarly, REO inventory both held by private-label securities and at FDIC-insured institutions also fell last quarter at a slower pace than the previous few quarters, notes Lawler.

In contrast, FHAs single-family REO inventory declinedlast quarter diverting from increases in the previous two quarters.

Lawlers third-quarter PLS inventory estimates are based on data reported by Barclays Capital through August that represent roughly 90% of all REOs, and the assumption FDIC-insured institutions carry an average value 50% higher than that at Fannie and Freddie.

As of October FHA-backed REO inventory decreased to over 32,200, down from over 41,800 in 2Q that reverses a recent trend of increasing REO inventory at the FHA.

Overall the inventory of real estate owned, Fannie Mae, Freddie Mac and FHA-backed mortgage loansdeclined slightlyin the third quarter of 2013 to the lowest REO level since 2010, according to a Calculated Risk report.

The combined REO for Fannie, Freddie and FHA declined to nearly 180,300, down from 183,400 at the end of the second quarter, and significantly lower than its peak of the 295,300 in the last quarter of 2010.

Analysts note that REO for private-label MBS, FDIC-insured institutions, VA and other types of REO also continue to decline.

Another housing inventory update from the National Association of Realtors Housing Tracker shows existing home inventory increased 1.7% year-over-year by the end of November.

It marks the seventh consecutive week the nations housing inventory is up year-over-year, suggesting inventory bottomed early in 2013.

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer, according to Calculated Risk.

NARs Housing Tracker data on inventory for the 54 metro areas show in 2011 and 2012 inventory only increased slightly early in the year before declining significantly through the end of each year, while the 2013 inventory is now 1.7% higher than in the same week in 2012.

Inventory is still very low, analysts note, but this increase in inventory should slow house price increases.

We can be pretty confident that inventory bottomed early this year. One of the key questions for 2014 will be: How much will inventory increase?

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