What’s Really Happening to the REO Stock? An Analysis of Three Cities – New York, Atlanta and Miami
The recent foreclosure crisis has caused a surge in the number of properties owned by banks and other mortgage lenders in cities across the country (often called “REO” properties). Fears that these properties may be depressing regional housing markets and destabilizing neighborhoods have motivated several policy interventions, including the federal government’s Neighborhood Stabilization Program.
To improve our understanding of the “REO Problem” we analyze REO trends in three housing markets with very different market conditions: Fulton County, Georgia (the core county of the Atlanta metropolitan area), Miami-Dade County, and New York City. Using local deeds data we identify properties entering the REO stocks of lenders, Fannie Mae and Freddie Mac (the GSEs), and the U.S. Department of Housing and Urban Development (HUD) over a ten year period from 2002 to 2011, and track all subsequent sales. Key findings of our analysis include:
• The size of REO inventory varies markedly across our three study areas, but stocks have declined recently in all three markets. As of the end of 2011, Miami-Dade County had the largest REO stock at about 7,400 properties (down by 42 percent from its November 2010 peak); Fulton County’s REO stock was 4,900 properties (down by 29 percent from July 2008 peak); and New York City’s REO stock was only 1,100 properties (down by half since its March 2009 peak).
• REO properties are more heavily concentrated in neighborhoods with higher shares of minority residents.
• Sales out of REO make up a significant share of all home sales in Fulton and Miami-Dade Counties, but only a very small share in New York City.
• The federal government (through FHA/VA or the GSEs) held more than 1,700 REO properties in each of Fulton and Miami-Dade counties as of the end of 2011, but only 250 properties in New York City.
• REO properties held by FHA/VA (via HUD) typically remain in REO much longer than those owned by the GSEs or private lenders.
• Investors accounted for a majority of REO purchases in New York City in recent years and at least a third of all purchases in Fulton and Miami-Date Counties. A vast majority of these purchases were by investors buying only a small number of properties.
• Less than five percent of properties purchased out of REO in each market are “flipped” by investors within three months. However, those properties that are flipped are generally resold for much higher prices.
Our analysis highlights the variation in REO accumulation patterns between U.S. cities and the possible difficulties in crafting a national policy response. Although recent reductions in stock give some reason for optimism, they are due mainly to slowdown in new REO entry, not increased rates of liquidation. In this context, acceleration of the foreclosure pipeline could cause REO stocks to again grow rapidly.
Full report below…