Although the majority of foreclosures are still being held off of the market, we figured now would be a good time to start tracking and charting the price difference in traditional, Foreclosure/REO and short sale transactions in the South Florida residential real estate market.  We will focus on Broward County, Florida single-family home sales first.

You will notice from the chart that Foreclosure/REO sales remain very low at only 10% of all sales in April.  Short sales were 20.7% of all closed sales for the same month and traditional transactions were the bulk of all closings at 68%.

We don’t have all of the April 2013 foreclosure data yet, but let’s look at the trend of new foreclosure filings and monthly distressed sale closings.

You will see from the chart that new foreclosure filings have outnumbered distressed sale closings by at least a 2-1 margin for for the majority of 2013.  As a standalone statistic, that may not seem too bad, but given the backlog of foreclosures in Broward County, it paints a gloomy picture for the “housing recovery” that covers the front pages of the local newspapers.

The next chart displays where over 38,400 single-family home foreclosures are scattered throughout Broward County, Florida.

Now here is the problem:  From January 2012 through March 2013, the average number of new foreclosure filings each month for single family homes was 950.  For the same time period, there were only 490 distressed sale closings per month.  That means the NET addition of distressed properties to the existing shadow inventory of over 38,400 homes is a rate of 460 per month!  Even without tackling the new filings, it would take over 78 months (or 6.5years) to dispose of the 38,400 single family homes that are in foreclosure, given the pace of 490 distressed sales per month.  And for another quick graphic, the next chart puts the shadow inventory into perspective and hopefully explains the temporary housing supply constraint that people have mistakenly called a recovery.

Finally, let’s take a look at the pricing of traditional, foreclosure/REO and short sales:

In April 2013, the median sale price for a traditional, single-family home in Broward County was $285,000.  To show how distressed sales sell at deep discount to traditional sales, the median sale price of a foreclosure REO in April was $123,350 ( a 57% discount) and the median sale price for short sales was $152,000 (a 47% discount).  Why is this important?  Because as the shadow inventory of distressed property starts to enter the market, you will see the short sales and REO transactions start to drag down the prices of traditional sales.  You haven’t seen it yet, but you will see it soon.  That is why we will start charting the price trends for you.  Basically, you will see a convergence in pricing and the red line on top will start dropping over time.  The existing market conditions of restricted supply and temporary price spikes will not last forever.  Banks will have no choice but to start selling their distressed properties.  Ironically, they will most likely be dumping their properties at the same time all of the institutional real estate buyers realize that the returns in the REO to rental business aren’t what they were cracked-up to be.  As their cost of borrowing increases and investment yields decrease, the smart money will gladly hand their inventory of homes over to the not-so-smart money.