Depending on your perspective on the market, the promised wave of foreclosures may have already hit California—but there’s a huge difference between filing for foreclosure and foreclosing, and that difference may be making all the… difference.
RealtyTrac on Thursday released its U.S. Foreclosure Market Report for the third quarter, which shows that foreclosure filings (default notices, scheduled auctions and bank repossessions) experienced a 5% increase from the previous quarter and an increase of nearly 23% from Q3, 2008. That means one in every 136 U.S. housing units received a foreclosure filing during the quarter. That’s the highest quarterly foreclosure rate since RealtyTrac began issuing its report in 2005, according to the real estate information service.
The news was much worse for California. With 250,054 properties receiving foreclosure filings, California accounted for nearly 27% of the nation’s total, according to RealtyTrac. In fact California, Florida, Arizona, Nevada, Illinois and Michigan accounted for 62% of the nation’s total foreclosure activity in the third quarter, the RealtyTrac report states.
While California produced the most in terms of raw numbers of foreclosures, Nevada continued to have the nation’s highest state foreclosure rate in the third quarter with one in 23 housing units receiving a foreclosure filing. Arizona posted the nation’s second highest state foreclosure rate in the third quarter, and California posted the nation’s third highest state foreclosure rate, also with one in every 53 housing units receiving a foreclosure filing during the quarter.
Despite the grim numbers, many in the real estate industry say that home sales are strong and multiple offers on homes are becoming commonplace. And it may be worth noting that many of these reported foreclosure filings don’t seem to be resulting in foreclosures, but short sales instead.
Mark Prather, broker owner for ERA/Buy America Real Estate in La Palma, which does a lot of deals in Long Beach, notes that the default notices aren’t necessarily equating to full-on foreclosures, and in fact a foreclosure following a default notice seems to be the exception rather than the rule.
“I think we’re seeing an amazing phenomenon right now,” Prather says. “It’s something I’ve never experienced, not in my career.” He adds, “If you look at the foreclosure rates, and all the people who are filing notices of default, you’d think we’re going to have a flood of properties on the market very soon. But I’m not seeing that from the actions of the lenders.”
Prather recently attended a trustee sale as an investor intending to buy several properties at a great discount. “There were 30 to 40 properties that were supposed to sell and it was less than 10 actually went up for sell,” he says. “The overwhelming majority of the foreclosures are getting postponed, and it appears the objective of banks and regulators is to get owners to short sell the property. And that’s a better solution for the owner and a better solution for the lender.”
In a short sale, in which the home owner negotiates with the lender for forgiveness on some part of the loan and the two parties work together to get the home sold quickly, homes tend to sell closer to the retail price, and there isn’t the vacancy and accompanying vandalism that often occurs with foreclosures, Prather points out.
And what’s holding the banks back, or enabling them to stave off the need to foreclose, is government money, Prather adds. To envision the effect this is having, just think of it as slowly releasing the steam from a pressure cooker—you don’t have that big explosion, but “we’re in uncharted waters,” says Prather.
And more and more folks are beginning to see value in buying homes that are being short sold, says Tim Rush, with Prudential California Realty, which represents a large number of buyers and sellers in and around Long Beach. “At the entry level and middle market it is a seller’s market,” Rush says. “We are encouraging (buyers) to make offers on short sales where there isn’t as much competition, but it takes longer to get an approval. People are frantic right now as they want to take advantage of the Federal Tax credit, which we hope will be extended, but can’t get into escrow. This is a crazy market, if we could just get faster answers from the banks on short sales we could make a lot of buyers very happy.”
Eileen Rivera, with Keller Williams Realty in Long Beach, who handles disposition of bank owned properties for OWM (formerly Indy Mac) and Fannie Mae, argues that “there is not a flood of bank owned properties waiting to hit the market,” and that in fact, “most realtors are complaining that there isn’t enough inventory and they’re constantly coming up against multiple offers.”
Nationwide, foreclosure filings were reported on 343,638 properties in September, a 4% decrease from the previous month, but a 29% increase from September 2008, according to RealtyTrac. Despite the monthly decrease, September’s total was still the third highest monthly total since the RealtyTrac report began in January 2005—behind only July and August of this year.
“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” James J. Saccacio, chief executive officer of RealtyTrac, said in a statement. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties.”