CoreLogic (a real estate data company) found that more than 30% of all single family homes have an underwater mortgage. 30%!! I find this to be a staggering number. This means that, potentially, 30% of the homes on MY block owe more to the banks (or banks) than their homes are worth.
California ranks fifth in the nation.
We are tied with Georgia, while Florida, Michigan, Arizona and Nevada have even higher rates of underwater mortgages.
What about this area?
While this is all lovely information, I wondered- what does this mean for us? Most of us understand that foreclosures and short sales are present, but how many of them are here? Do they sell for a discount? How much? More importantly, are there more to come?
I decided to analyze just one zip code to make the data crunching easy, however, I can easily do YOUR Glendale, La Crescenta or La Cañada zip. Let me know what you want in the comments below.
Let’s examine 91202
| Regular Sales (under $700,000) | Short Sales | REO (Bank Foreclosures) | |
|---|---|---|---|
| Number Sold YTD | 19 | 16 | 10 |
| In Escrow | 9 | 21 | 1 |
| Median Price | $513,000 | $505,500 | $636,000 |
| Average Price per Square Foot | $366 | $292 | $286 |
| Percent Difference Relative to regular sale | <20%> | <22%> |
I decided to filter the regular sales for price so that I could get the median price closer to the median price for the short sales. I wanted to see a fair comparison on price per square foot across the categories.
Whoa- that’s a lot of short sales!
The first startling fact is the sheer number of short sales. There are 37 closed and pending short sales versus the 28 regular sales. Now, a percentage of these sales in escrow will not close- the banks might deny the short sale approval, the current buyers might walk away , or the seller could change their mind. However, it is still reasonable to assume that there are as many short sale transactions as there are regular sales.
Why are there so few foreclosures?
I was also surprised to see how few foreclosure sales there have been. This is due to the fact that many of the big banks, led by Bank of America, had a freeze on foreclosures for most of this year. Just recently, however, Bank of America has starting working through it’s backlog of delinquent mortgages. In 91202 there are 104 homes slated for foreclosure auction.
So, how does this affect price?
Good question. Average price per square foot is a good indicator of general value. It smooths out the variations of house size and sales price. In 91202 homes that sold short sold for 20% less than a regular sale home. Foreclosures sold for 22% less than a regular sale.
Don’t be stupid
Now you are armed with some serious information but, beware! Desirable homes fair better than a sad home in a poor location (naturally). Don’t miss out on a great house in a great area because you feel there isn’t enough of a discount. The moment you close escrow on a short sale the value shoots up to equal market value.
About Kendyl
Hail oh Tech Visionary!
I was confused by the last sentence of your very excellent article on distress sales in Northeast Glendale. What does it mean that “The moment you close escrow on a short sale the value shoots up to equal market value.”?
Oh- good question!! A short sale homes sells at a discount because the buyer takes on two risks, 1. the process will take a long time and 2. at the end of a long wait the bank might changes the price or deny the short altogether. As soon as the new buyer takes possession this risk goes away.
Therefore, if the new buyer were to turn around and sell the home the next day, theoretically, the home would now sell for market value.