Bay Area Foreclosures Lead the Way

Anyone having read this years headlines has been hearing the same message about real estate; Inventory is up, Sales are down and Prices are down. However, little has been said about the relationship of foreclosures to our markets except in a very general manner, at least not until a recent article in the San Francisco’s Chronicle finally got it right. “Housing market muddle,” written by Carolyn Said, ran in this Wednesday’s paper.

The article talks about how foreclosures are influencing the markets. As always, these articles are never specific enough, nor quite up to date. The article uses DQ News as a source. This is definitely a great source to be using. However, the numbers used are always based on last month or the prior month. The principal message in it’s article “Bay Area home sales remain at a 2 year low,” is that “Last month’s median price in the Bay Area was 19.4 percent lower than the peak median of $665,000 reached last June and July.” The spreadsheet breaks down numbers by counties.

I’ve taken this a step further because markets are much more localized. You can view “Glen’s Numbers” (taken as of April 15), and broken down by city, HERE.

The influence that foreclosures have on markets is becoming greater than ever. The relationship between inventories, sales, prices, and REO (foreclosures), becomes a little clearer. Since February 1, 2008, in the last 2 and half months, 36% of all sales in the Bay Area have been foreclosures. Typically, banks do not spend much on curb appeal, repairs, clean-ups, staging, etc. They lead with price, and are finally becoming very aggressive as a means to lead the way in sales of those cities with far too much inventory.

Investors and buyers are now recognizing that foreclosed properties for sale are running at a discount. The message, “More people can afford to buy,” is clear, and REO (foreclosures), are getting picked up as bargains.

Those cities that have been influenced the least with price reductions are areas that typically have very little foreclosed properties and lower inventories;

Berkeley has a 2.7 months supply of homes on the market. Only 4% of its sales since 2/1/08 have been REOs.

On the other extreme, Pittsburg has a 27.3 months supply of homes on the market. 81% of its sales since 2/1/08 have been REOs.

Again, I encourage you to view the complete list of the 38 cities in the East Bay Area in the above link.