Late 2009 Foreclosure Update

Towards the end of 2009, I ran some numbers on the MLS and on Realty Trac to test our local pipeline of foreclosure inventory. Every micro-market is different, based on supply and demand and the economic outlook for jobs, etc. For example, practically everyone agrees Santa Cruz hit bottom early this spring and has leveled out since then?Scotts Valley is similar. I don't work the San Jose market but I hear it's gotten very competitive too.

In the San Lorenzo Valley - from Boulder Creek to Felton - 167 homes had sold in the first 3 quarters. Since 86 of those were distressed or foreclosure related, 51% of all sales were distressed. Another 69 homes were on the market waiting to sell, and another 73 were in escrow. So the total inventory for the year so far is about 309. The ratio between sales and listings indicates a balanced market between buyers and sellers.

According to RealtyTrac.com, as of late October 2009, about 155 properties were in distress: 42 are bank owned and 32 are scheduled for trustee sale?which will end up bank owned. 79 are in default. Let's assume that some portion of the properties in default will not foreclose because the families will get back on track or their loans will get modified. Round numbers, 74 are more or less bank owned right now, with let's say another 45 coming on the horizon over the next six months or so (that is about how long it takes now). That's about 119 distressed properties somewhere in the pipeline. 48 of those distressed properties are in escrow right now, while 18 are listed as actively for sale on the MLS. So 66 of the 155 distressed properties are already listed or in escrow. That leaves a "back-log" of somewhere between 89 to worst case 110 properties. Compared to the sales activity so far this year, the pipeline in this area doesn't look like a looming wave to me.

Here and nationally, sales have definitely picked up over the last few months. Nationally, part of that is attributable to the 1st time home buyers' tax credit. Locally, a lot of investors and first time buyers believe we are at or near the bottom in Santa Cruz County. For the first time since I can remember, properties generate positive cash flow for investors. In other words - properties generate more money than they cost to own. So investors are moving money out of other investments and into real estate because it is more profitable for them right now, before even considering any appreciation potential. Also for the first time since I can remember, people are paying less each month to buy a home than they pay to rent. Statewide, economists are saying that housing affordability is the best it has been since the late 1970s.

In 2009, my clients invested over $870,000 in cash into the market--much, much more than in 2008. Transactions included a vacation home, investments and rentals, and first homes. Because the monthly mortgage payments are so low, I am confident about the long term potential of this market. I'm basing this not only on my own experience, but also those of agents who've been working as agents in the valley 20 and 30 years. This is like getting a second chance to buy at prices of 10 years ago, with the added benefit of currently low interest rates.