Sunday, April 27, 2008

Foreclosures and Short Sales in San Diego as of 4/27/08

We gave a homebuyer seminar this last Saturday, the 26th, and received several very good questions with respect to what we are experiencing in the short sale / foreclosure market. I thought everyone would like to know that although the market has been tough, you can’t just low-ball the bank and expect to walk away with a deal.

In summary, if you are serious about owning a home or investing, then…

When a property is 30% or more below where it was at the top of the market, it is probably a good deal, move quickly. When it is a short sale, your target is the current low list price or about 20% below its old list price, but be prepared to wait months before hearing back from the lender and don’t be surprised if you lose out on several opportunities. When you see a normal sale, aim for 10% below its list price and expect the properly priced properties to disappear in about a month’s time. Details and rationale below.

There are 18,673 homes or condos on the market.
There are 6,281 (33.6%) listed as short sales.
There are 942 (5%) listed as foreclosures.
Nearly 39% of our market is composed of distressed homes.

In 2007, there were 1,839 short sales that closed. This year, there are already 1,372 that have completed the process. That puts us on track to more than double last year. Everyone wants a deal; labeling a property as a short-sale brings out the bargain hunters. For two different buyers, we have attempted to put purchase offers on several properties only to find that every one we asked after already had multiple offers. The agents are merely waiting on the lenders to respond, which is taking 2 ½ to 4 months. We surmise off our few data points, that most short sales probably have multiple offers and only the bank delays are keeping them on the books. One can only surmise that our market would look much stronger if all these pending offers were completed sales.

Of the short sales that have been sold this year, the most interesting fact is that the median sales price is 99.8% of the low asking price (stdev=6.4%). That is to say that, on average, you should expect to pay the low asking price, as can be seen in the following histogram, broken down in 5% increments, labelled with the low end of each increment,

Having said that, the asking price tends to be reduced over time. The chart below shows the sales price divided by the old list price with respect to days on the market.

The median sales price comes in at 87.4% of the old list price (stdev=11.1%). The following histogram shows how sales prices compare to the old list price.

The absolute best sales price to old list price ratio was 50.9%, the median was 87.4%and the worst was 117.1%. The moral of the story... don’t put in a half price offer and plan to get anywhere.

Short Sales and Normal Sales

The major differences between short sales and normal sales can be seen in the following table.

Median ValuesShort SaleNormal
Avg Mkt Time9929
Sales / List Price99.8%98.6%
Sales / Old List Price87.4%92.9%

The most significant observation is that normal sales now tend to be pretty well-priced out the gate and are being purchased in less than 1/3 the time of a short sale. Of course, the time difference could merely be the delay in waiting on the lenders. Not surprisingly then, the sales price in a normal sale ends up being much closer to the asking price.

In conclusion... there are good buys out there and they are going quick. However, there are a ton of new listings that are still over-priced. So, look at the time on the market and check to see whether or not the price has already been reduced. Keep the above statistics in mind when making your offer.