Banking Karma: California Foreclosures Outpace Sales

Bankers who once pined to sell real estate are getting what they asked for, but probably not in the way they imagined. Be careful what you wish for.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - Be careful what you wish for.

Early this decade, banks lobbied heavily for a right to sell real estate.

Right now those same bankers are likely squirming to get the heck out of real estate and back to the once-profitable business of mortgage banking.

In at least one instance, and probably many more, lenders held more foreclosures than the number of homes sold on the open market during the same period.

The month of January marked the first time ever that the number homes sold at foreclosure auctions exceeded the combined number of resale single-family homes and condos sold in California.

It's a chilling trend.

ForeclosureRadar.com reported 19,821 homes were sold at foreclosure auctions in California in January. That's an astounding increase of 454 percent in the past year.

Meanwhile, DataQuick Information Services, for the same month, recorded 19,145 single-family and condo resale home sales -- the lowest monthly sales number since DataQuick began recording in 1988.

Sean O'Toole of ForeclosureRadar said there likely has ever been another time when the number of foreclosures exceeded the number of sales in a given month.

The trend is chilling because auctioned home prices tend to be less than heavily marketed resale homes on the open market. A greater share of foreclosure properties really lowers the boom on home values in general.

It gets worse.

Interest rate adjustments on adjustable rate mortgages (ARMs) and the mortgage credit squeeze are exacerbated in California by the still relatively high-cost of housing. With some of the most expensive housing in the nation, the state isn't a hotbed of affordable pricing.

There is only a thin silver lining in the Golden State's housing market.

With ballooning foreclosures and deflated sales putting heavy downward pressure on prices, there are more opportunities for buyers who can get past stiff underwriting.

In January, sales fell nearly 30 percent and the median price of a single-family home, about $430,370, was a whopping 22 percent less than the $551,220 median a year ago, according to the California Association of Realtors (CAR).

“This most recent decrease in the median price is yet another result of the liquidity crunch, which has choked off sales in recent months for nearly half of California's housing market," said CAR President William E. Brown.

However, CAR said the percentage of households that can afford to buy their first home in California was 33 percent in the fourth quarter of 2007, up from 25 percent a year earlier.

The minimum household income needed to purchase an entry-level home at $411,170 in California in the fourth quarter of 2007 was $82,200, based on an adjustable interest rate of 6.21 percent and assuming a 10 percent down payment, according to CAR's First-time Buyer Housing Affordability Index.

First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. That would put the monthly payment including taxes and insurance was $2,740 for the fourth quarter of 2007.

"Sales do appear to be edging up, but recent declines in the median price have been due to a lack of sales in the over $500,000 range, where funds are extremely scarce and jumbo loan rates are at near-record margins compared to conforming loan rates," said Brown.

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© 2008 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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