I suggested in my “Predictions for 2009″ that prices would be directly affected by new foreclosures coming to market. For the past 4 years, areas that had lots of foreclosures dropped as much as 50%, whereas areas that had lower rates of default lost less than 10%. It was my expectation that, based on continued high default rates, prices would be soft and in many areas continue to decline because of foreclosure competition driving prices down. Surprisingly, the amount of foreclosures coming to market has been a fraction of last year at this time. In fact, inventory in Santa Clarita is at about 1150 homes vs. 2065 a year ago. So what is happening??
1. Starting last year many loan servicers started complying with a government led “moratorium”. I have tracked dozens of homes that went to foreclosure sale in December, January, Februaury and March that have never come on the market. I could write a thesis on what I believe is happening here, but suffice it to say they aren’t for sale…yet. Loan modifications, by my estimate, will only work for about 25% of these (many are vacant or tenant occupied), so the biq question is WHEN? Today in Santa Clarita there are “only” 106 bank owned properties compared to well over 300 a year ago. Multiple offers are commonplace and agents that don’t really understand the Santa Clarita market are pricing foreclosures lower (in some cases much lower) than they need to.
2. Assuming a large amount of foreclosures hit the market this summer, the lower price ranges will still be relativly stable for good condition properties. In fact, if we removed the “short sales” from the market it would not be a buyers market under $450,000. Let me explain. Of the 1181 homes for sale today, 564 are short sales. These are listings that every agent, if they are being honest, shows only as a last resort. Take away these homes and we have 617 “salable today” properties. The last time the number was that low prices were going UP 25% a year, not down. Stand around the Remax office and listen to all the agents moan about the lack of homes to show their buyers and you would swear it’s 2004. The challenge, of course, is that the buyer’s mentality today is 180 degrees opposite of 2004–they are unwilling many times to offer asking price or over asking price for lower priced properies with multiple offers. Many just don’t understand or accept the supply/demand dynamic happening, but smart buyers are buying quality under $450,000 without reservation.
The exception to this discussion is homes over $800,000. This has been a low foreclosure part of the market, but prices are adjusting here rapidly–for the most part due to a lack of buyer confidence and lack of available financing. As always, the numbers tell the tale. Today in Santa Clarita, over $800,000, there are 137 homes for sale and only 25 in escrow. Over 1 million it’s even tougher–83 homes for sale and only 4 in escrow. Less than 20% of these are short sales or foreclosures, so it’s more lack of demand (and more than ample supply) driving prices down here. Top quality still sells, but it better be priced right.
