Wednesday, March 4, 2009

Interesting stats

I have been tracking lender's bid vs. sale price for FHA loans in Iowa for a little while, and the numbers are interesting.

The calculation:
The sale price to a new buyer after the sheriff's sale divided by the amount bid by the lender at the sheriff's sale as a percentage.

The data:
The amount bid by the lender at the sheriff's sale is essentially the money the lender has lost, between the principal balance of the loan, accrued interest, taxes and insurance paid by the lender, and costs of the foreclosure. The sale price to a new buyer is the actual price paid by someone who is buying the property after the foreclosure has gone through and the property has gone back on the market.

The results:
The price paid by the new buyer is a little more than half of what the lender bid at the sheriff's sale. For seventy-six properties analyzed, the drop is 48.28%. There were some amazing outlyers:
$58,000 bid - $8,000 sales price
$44,000 bid - $5,000 sales price
$45,000 bid - $3,000 sales price
$80,000 bid - $21,000 sales price
$115,000 bid - $42,000 sales price

The average number of days between the sheriff's sale and the date of the accepted contract is 291--sneaking up on a year. This does not include the time it takes to foreclose, which can be an additional two to twelve months.

Granted, this is a relatively small sample (however, the standard deviation is 0.1656, so the difference is certainly statistically significant), but what is the cause of incredible loss of value? Three possibilities come to mind:
  1. The lenders loaned way more than the property was worth;
  2. The foreclosure process takes too long, and allows the properties to remain vacant for such long period of time that they significantly deteriorate;
  3. Something about the property being vacant and/or foreclosed somehow stigmatizes the property, and makes many buyers avoid them.

Any other ideas, or better yet, suggestions?