Making the Case for Short Sales

The housing market is still volatile, prices are dropping, and the media has been posting stories of doom and gloom in real estate once again. But it is important to understand the market in your hyper-local area, not just look at the big picture, and this is a common mistake.

Overall, 40% of home sales across the nation are distressed property sales, yet foreclosures have gone down and are at a 40 month low. While you can take this news in many different lights, you need to understand what is going on in North San Diego and know what to expect moving forward.

Here in North San Diego the average median sales price (around $540,000) has dropped slightly in the last several months, but that is still higher than that of many areas, especially hard hit areas like Phoenix and Las Vegas. Even right here in our own county areas like Chula Vista are much lower.

It is also intersting to look at the number of distressed sales on the market in North San Diego. In Carlsbad, for example, there are under 100 short sale properties on the market (or 0.14% of listed properties). Chula Vista has 350 (0.45%). So comparatively speaking we are at the top as far as the distressed market goes. In years past the 92011 zip code of Carlsbad had the lowest number of foreclosures in the entire county of San Diego.

According to industry experts, lenders will start to bless more short sales in the near future, in order to avoid high foreclosure numbers. Some lenders have begun to do so, but we are still seeing long timelines with others. The fact of the matter is that foreclosures do not benefit lenders, communities, homeowners or the economy.

Lastly, there is a misconception about short sales and it is necessary to understand how they are obtained. Lenders must grant their approval for a short sale. In order for that to happen there are many things that are heavily scrutinized, like home value, income, debt, savings and other factors. It is much harder for someone to have a short sale granted simply because they want to "walk away" from their mortgage.

The number of homeowners underwater (their home is worth less than the amount owed on their mortgage) is increasing and will continue to do so until the market stabilizes. According to Zillow 1 in 4 homes in San Diego county have negative equity, but this number is lower than the national average of 28.4%. These people can try to qualify for a short sale, but if they are making a decent income that can cover payments it is unlikely the lender will agree. Since refinancing is not an option with negative equity, these owners are left with either foreclosure or sticking it out (unless they have extenuating circumstances, like illness or a death in the family).

Distressed properties will not go away until the economy and job market heal, so instead of ignoring them we need to clear them out. Short sales are a good way to do that; if lenders start making the process quicker we can sell the distressed inventory and return to a more "normal" market, including a slow rise in property values. This in turn will have a positive effect on the economy in the long run.