December 2009 Update

There is a lot of talk in the media about a coming avalanche of bank-owned (REO) foreclosure inventory hitting the market — due to lenders having held previously foreclosed homes off the market (to avoid a collapse in prices). This is sometimes called the “shadow inventory.” But according to DataQuick, there were 528 San Francisco homes foreclosed upon by lenders in the past four quarters. In the first 11 months of 2009, there were 388 REO home sales, with another 132 currently for sale or pending sale. So, in the city at least, the number of foreclosures and the number of foreclosure listings are almost exactly the same, i.e. foreclosures seem to be moving smoothly through the market, without a “shadow inventory” building up.

This doesn’t mean that foreclosure rates may not increase in the future.

For this analysis, a foreclosure/REO sale is the sale of a home by the financial institution which had previously foreclosed upon it. (“REO” refers to the bank department “Real Estate Owned”.)

A short sale is a sale in which the existing property loans, other monetary liens and costs of sale exceed the sale price – i.e. the owner owes more than the property is worth. In a short sale, the lien holders-typically the bank(s)-must agree to a reduced payoff for the sale to close. Short sales are complicated, usually take much longer to close escrow (or fail to close altogether) and may have significant financial ramifications for sellers, but they can be a preferable alternative to foreclosure for sellers, and can present buyers with purchase opportunities worth considering.

Click Images For Larger View

Paragon Real Estate Group

REO & Short Sales to Total Home Sales

For 2009 through November 30th, REO house sales equal about 14% of total house sales, with short sales making up another 7%. For condos, the percentages are about 7% and 5% respectively. These percentages have stayed relatively stable for the past year. The REO house market is very hot with a very low median days-on-market figure of 22 days, and with 60% of such sales averaging a sales price 6% – 7% above the asking price. The REO condo market is not only much smaller, but cooler as well, with a median days-on-market of 55 days.

Free Foreclosure Avoidance Counseling

Paragon Real Estate Group

Foreclosure (REO) Sales by SF Neighborhood

As has been the case since the foreclosure crisis began, the majority of bank-owned house sales occur in the city’s less affluent, southern border neighborhoods running from Oceanview to Bayview-indeed, a little more than half of all house sales in those neighborhoods are either REO or short sales. For REO condos, the main neighborhoods are SOMA, South Beach and Mission Bay, where most recent condo development has taken place. The areas of significant short sale activity are much the same as those affected by foreclosure sales.

Paragon Real Estate Group

Foreclosure (REO) Sales by Price Range

Bank-owned home sales in San Francisco occur mostly in the lower price ranges, with most closing under $500,000. The median sales price for REO houses is $485,000 for a median 1336 square foot home; for REO condos, the median price is $425,000 for a median 1015 square foot condo. There has been very little REO activity in the higher price ranges and more affluent neighborhoods, however one REO mansion in Pacific Heights did sell this year for $11,500,000. That’s a doozy of an exception.

Paragon Real Estate Group

Short Sales in San Francisco

Supposedly, with Federal encouragement, the lender short sale process is going to become much easier and faster for the buyers and sellers involved. But so far most lenders’ short sale departments have a reputation for being very difficult to deal with and incredibly slow. The most interesting thing about this chart is how high the numbers are of listings which have accepted offers, but not yet closed, when compared to closed sales year to date. It may be that the number of short sales in starting to increase, though that is not reflected in previous charts. It is more probably due to the fact that after an offer is accepted, many short sale transactions then take many months to close or indeed never close at all (due to lender veto, foreclosure or buyer exhaustion).

Paragon Real Estate Group

Foreclosures by County

This chart tracks bank foreclosures, and not the resale of homes already foreclosed upon. Compared with other California counties, San Francisco’s number of foreclosures remains very low: according to DataQuick, in the 3rd quarter of 2009, 179 SF homes were lost to foreclosure.