Are Short Sales an Illusion?

Lauren Beale of L.A. Land over at the L.A. Times blogged recently about an interesting finding buried way down in the recent UCLA Anderson Forecast on the California economy — that short sales, despite how many there are on the market right now, are really a false barometer of current market values because they aren’t selling. Banks are simply not moving fast enough to make these realistic opportunities — what buyer wants to wait 2 months to find out if their offer was accepted? So they sit on the MLS listings and give an unrealistic view of what buyers should expect to pay. Here’s an excerpt (the “he” is Ryan Ratcliff, forecast scholar and assistant professor at the University of San Diego):

An admittedly imperfect parsing of 2008 MLS data for San Diego County supported (this) observation: short sales accounted for 36% of listings but only 12% of sales. “The short sale listing and its attractive price were essentially just an illusion,” he writes.

The home shopper-economist also found that the time between listing and closing was almost six weeks longer for a short sale and that such listings are largely in the bottom half of the home price spectrum.

As short sales relate to the question of a housing rebound, he concludes, that they “have temporarily hijacked the market mechanism” and that “the near-term course of the housing market will be determined more by the procedural timelines of foreclosures and short sale approvals than any notions of a magic price that will clear existing inventory.”

Here’s some local (90039) short sales and foreclosures. Another thing I’m really noticing is that in the better areas (like Silver Lake and Los Feliz), the high-end houses aren’t in default. I’m seeing more low-end, starter homes in questionable locations that are falling into trouble. I think there are deals out there, but fewer that recent news accounts would have buyers believe.

• 2706 Newell St: This 1/.75 with 598 is a short-sale, listed at $392,000. But that’s still $656 a square foot!
• 3465 Perlita: This Atwater 2/2 has 1,285 square feet and is bank-owned.
• 3837 Brunswick: A2/1 with 1,128 square feet, another REO for $415,500.