The National Association of Realtors released data today showing that the November 2008 median home price dropped 13% from the November 2007 median price, even as mortgage rates plummeted to their lowest levels in the 37 years since anyone has been keeping track, to an average last week of 4.96% for 30-year, fixed-rate mortgages.
Since the price drop-data is for November while mortgage rates declined in December, it may be that the market just needs time to respond. But one analyst called the price drop “breath-taking” and “god-awful.” The WSJ quoted an economist as saying that “the housing industry is in the process of reducing capacity to dangerously low levels.” A second economist said that, “outside of distressed properties, the [California] market is nonexistent almost.”
This made us wonder whether it’s really true, in California or elsewhere, that most of the homes for sale are foreclosures being liquidated by banks.
Since Redfin’s database includes virtually all the homes for sale (basically everything except what’s on Craigslist), including bank-owned listings as well as for-sale-by-owner (FSBO) listings, we can measure what percentage of homes for sale are bank-owned. And we can do this with unusual precision because we map all the data down to the level of a city, neighborhood or postal code.
Here’s what we found for nine of the largest cities we cover, sorted from the highest concentration of listings in foreclosure to the lowest, as of December 22, 2008. We measure the ratio of for-sale-by-owner listings as a percentage of the total homes for sale in each city, and then do the same for foreclosures.
| City | FSBO | Foreclosures |
| San Jose | 1.3% | 29.2% |
| LA | 2.5% | 18.1% |
| San Diego | 2.6% | 16.5% |
| Boston | 3.3% | 11.1% |
| DC | 4.4% | 9.9% |
| Chicago | 4.3% | 7.0% |
| Baltimore | 5.3% | 6.3% |
| San Francisco | 2.6% | 3.9% |
| Seattle | 7.7% | 2.2% |
And it’s true that in major California cities south of the Silicon Valley peninsula, about 1 in 4 homes for sale have been foreclosed, and others are being sold by sellers trying to avoid foreclosure (short sales). But the number of short sales may soon be decreasing, as banks are now soliciting short sellers to modify their loans at the new low rates so folks can keep their home.
I used to worry that the low rate of foreclosure in Seattle and San Francisco was a disaster waiting to happen. Prices will fall through the floor in those markets if the percentage of listings being sold by banks increases in either place to 20% or 25%.
But because the downturn in Seattle and San Francisco prices started a little late, and mortgage rates fell soon thereafter — unemployment, not increasing mortgage payments, will be the main driver for foreclosures here — maybe Seattle and San Francisco can avoid the huge pile-up of distressed inventory that is dragging down the market in Southern California.
What do you think? Why do Seattle and San Francisco have such low foreclosure rates? And will this continue?
(Photocredit: Ironside on Flickr)
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