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Today’s Talking Point 11/09/09

What is the definition of ‘Accumulation’ rate?

‘Accumulation’ rate talks to the point of future inventory coming to the market.

An example of this is Zillow ‘s recent report suggesting an additional 7 million homeowners are ‘very likely’ to put their homes up for sale if they see the market getting better. Another example is looking at the current delinquency numbers knowing a certain number will come to the market as foreclosures.

Sam Khater, senior economist with First American CoreLogic put it well in an article in the Orange County Register:

The reason REOs have declined is that flow of distressed properties into REO has been artificially restricted due to local, state and GSE foreclosure moratoria, loan modifications and servicer backlogs. This has led to a drop in the supply of REO properties, while at the same time sales (including REO sales) increased due to the artificially low rates and first-time homebuyer tax credits, which further depleted the supply of REOs. This dynamic has led to the rapid improvement in home prices over the last six to eight months.

However, the mortgage distress is high and rising as is evident by the 90+ day category, which means the pending supply is building up due to high levels of negative equity and rising unemployment. So we have a situation where at the back end (ie REOs) it appears as if it’s getting better, but it’s really a mirage as we know that the pending supply pipeline default (ie 90+ day DQs) is looming larger.

The challenge, especially for our industry which has only ever looked at past history and current data, is that ‘future’ numbers can never be 100% accurate. We are an industry that feels we must deal in definite numbers so we refrain from looking into future.

EXACTLY how many sellers WILL put their homes on the market? Not sure.

EXACTLY how many homes WILL go to foreclosure? Not sure.

EXACTLY how many homes WILL be sold as a short sale? Not sure.

What I am sure of is that there will be millions. And millions will result in tremendous downward pressure on prices.

The doctor cannot predict the exact outcome of surgery.

The attorney cannot predict the exact outcome of a trial.

The stockbroker cannot predict the exact future value of a stock.

Yet, they can give us a pretty good feel based on their knowledge.

We, as an industry, should treat our clients as every other professional does theirs. Give great counsel based on our professional analysis of the facts – past, present and FUTURE facts.

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