Are All the Homes for Sale in Foreclosure? I Don't Think So…

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)

Discussion

  • http://www.condoauthority.com JT

    I think some markets lead the trend while others trail or somewhat buck it for whatever reason. When prices stopped increasing in the DC area the data showed prices coming down in Northern Virginia while Suburban Maryland continued to increase slightly. Now MD is declining just like VA and may continue to decline for some period of time after NOVA has already hit bottom. The District hasn’t really seen prices come down yet, so go figure.

  • http://blog.redfin.com Glenn Kelman

    JT, Do you think that DC real estate is somewhat immune to the recession because of counter-cyclical federal spending? It’s something we’ve asked ourselves…

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  • http://www.bloodhoundrealty.com/BloodhoundBlog/ Greg Swann

    Seattle and San Francisco have no land to grow into, a function of both geography and politics. As long as people are willing to pay a relative premium to live in those two cities, they will fare better than cities with more room to grow.

    FWIW, instead of the chart you are showing here — listings — it would be more interesting to see a chart of what actually sold in November broken out by lender-owned, short sale and sellers-with-equity.

    It’s worth nothing that Redfin does not work in any really troubled markets. LA and San Diego both benefit to a degree from the kinds of geographical limitations and land-use restrictions that are proving to be such a boon in San Francisco. (There is an argument that the surging prices caused by limited new housing supplies in the Southland is the actual genesis of the housing boom.) If you have access to the same quality of data on Sacramento, we’ll learn a lot more.

    And: For the benefit of inlookers: While Redfin’s software tools are without doubt exactingly precise, MLS listings are not. Few short sales and lender-owned homes will be miscast as being sold by sellers-with-equity, but many, many short sales, especially, will be misrepresented as being normal transactions. There is no way to correct for this except by making a lot of phone calls.

  • http://www.MortgageRatesReport.com Brian Brady

    “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.”

    It sure feels like it, Glenn. It seems that every transaction has to get bank approval nowadays.

  • http://findire.com/StandardPropertyDetails.aspx?listingID=2831 Midtown Condo

    I admit, I have not been on this real estate blog in a long time… however it was another joy to see it is such an important topic and ignored by so many, even professionals. I thank you to help making people more aware of possible issues. Great stuff as usual….

  • http://short-sale-process.com Susan

    San Diego is much higher than I thought, but there are quite a few short sales and foreclosures with a few traditional sales here and there.