The Unconditional Blog

The impartial voice of the industry

 
5

The mortgagee hangover

Posted on: November 16th, 2011 | Filed in Featured, Market News

The headlines keep reminding us that we are still globally mired in what can be thought of a global economic doldrums. Europe seems perilously close to some form of collapse or at least a “lost decade” and as ever when one of our major trading partner sneezes we tend to catch a cold.

At this time, one of the measures of this – what might be thought of as a long term hangover is mortgagee sales. Those properties where for whatever reason the property owner fails to meet their obligation with the lender and proceedings ensue whereby the lender (in the main, high street banks) seek to repossess the property and auction it off as a “mortgagee sale” to recover the debt owed on the property.

This sector of the NZ property market is a background condition in boom times as well as in bust times, it just tends to be that bust times tend to raise the levels of mortgagee properties being brought to the market. Over the past 4 years this has been very evident as the chart below highlights.

At the peak of the global financial crisis in 2009 the number of mortgagee properties being marketed peaked at over 400 properties in the market and in that year a total of 2,231 mortgagee properties were placed on the market. That compared to just 571 in the whole of 2007 (pre GFC). In 2011 so far 1,535 properties have brought to the market as mortgagee listings by lenders seeking to liquidate the asset.

At this time on the market there are 396 properties being marketed by real estate agents as mortgagee properties. As mortgagee properties are not a defined category our data set relies on the use of the term mortgagee to identify such properties.

As stated this continuing prevalence of mortgagee properties on the market is a bit of a legacy hangover – a legacy we seem unable to shake. Examining year on year data as the chart below shows, the fact is that 2011 is actually worse than 2010 when judged on the perspective of the percentage representation of mortgagee properties on the market as a proportion of all properties being marketed.

The scale of the NZ mortgagee property hangover is though somewhat modest when compared to other countries, most notably the US where still some 3 years after the GFC as a result of the sub-prime mortgage fiasco mortgagee sales (foreclosures as they are called) are estimated to still total 2.1 million properties and by some estimates will take a decade to clear, by comparison NZ mortgagee listings have never represented more than 0.75% of all listings or less than 0.5% of total sales.

Article Discussion

  1. […] I did run across an interesting article today by the Unconditional Blog entitled The Mortgagee Hangover that suggest things may not be all rosy out there (which is hardly news to most, I […]

  2. I thought I would add this comment which came to me by email from a reader who I will not identify directly as he may wish to remain anonymous:

    Excellent and useful analysis, but I was disappointed by one particular comment you made…..

    The article states “most notably the US where still some 3 years after the GFC as a result of the sub-prime mortgage fiasco mortgagee sales (foreclosures as they are called) are estimated to still total 2.1 million properties and by some estimates will take a decade to clear, by comparison NZ mortgagee listings have never represented more than 0.75% of all listings or less than 0.5% of total sales.

    …this comparison is fundamentally worthless, given that you compare a number in the US (admittedly 2.1 million is an impressive number) with a percentage in NZ. Surely you could have made the comparison more real by including what percentage of the US listings is represented by the 2.1 million homes – as it stands it’s missing any useful comparator. Similarly, an estimated clearance rate for NZ would provide a useful way of comparing the states of the respective markets.

    Good article though – thanks!

    S. Smith

    In response let me say that I accept that this is a little of an apples with pears comparison. Let me therefore share some further data. From my readings and listening to articles regarding the US property market the current rate of sales of properties in the US is around 5 million per year – that means that the 2.1 million is a very scary amount of properties, as to how many are on the market at this time I am not sure.

    I did do some research on Realtor.com which is the equivalent property portal to NZ’s Realestate.co.nz has for example 871 foreclosure properties on the market in San Diego as compared to 4,667 all properties for sale in that city – that represents 18% of listings. The figure I did hear but cannot verify is that at its peak 10% of all listings in the US were of foreclosure properties.

  3. Another factor in assessing the impact of mortgagee sales, insofar as you can accurately count them, is time to sell…in other words, how long they remain listed. If time to sell is one month, then a constant 400 listings = 4800/year. If time to sell is one and a half months, its only 3,200.

    At the moment, with a shortage of listings in Auckland (not so sure about other areas), the time to sell has come down somewhat….certainly less than it was in 2009 when the listing numbers were at their peak. So one might think that close on 400 listings now indicates a greater degree of stress than 2009…at least in this final quarter.

    On its own it is hard to draw any firm conclusions, but it is all grist for the information mill.

  4. Ivan

    Your logic is correct as to the estimation of sales to listings, however I would judge that for mortgagee properties the time to sell would not likely change from year-to-year.

    These properties are in the possession of the banks who want to liquidate this asset which they certainly never wanted to own. They are marketed by agents that are motivated to complete the transaction and almost all are auctions with a 3 to 4 week period. Therefore it is likely that the inventory of properties on the market are aligned to sales per annum – close to the 4,800 you anticipate.

  5. Colin Kelly Colin Kelly says:

    Good article Most significant feature was the sales as less than 0.5% of total sales. in other words, having no impact on the market. Here in Wellington, investors & first home buyers, especially from out of town, are staggered to find virtually no distressed vendors, and no “bargains” Remember too, few of the Mortgagee properties we see actually sell anyway, they go to the brink then pay up as often as not.

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