Movoto.com recently announced that half of all families in the US can afford a house – see article. The picture isn’t quite so rosy in San Jose, but it’s still a good time to be looking for a San Jose home for sale. Inventory is good, many foreclosures and short sales are available and prices haven’t been this good in years.
On Thursday, Oct. 28, RealtyTrac reported that San Jose and San Francisco Bay Area Q3 2010 foreclosure rates dropped 21.7% from the same period in 2009 – a significant improvement. However, foreclosures were stable from Q2 to Q3 of this year with the rate essentially unchanged.
Stable foreclosure rates in 2010 are good news, but the “new normal” in San Jose homes for sale is not pretty. In Q3 nearly 18,000 homes showed foreclosure activity and 1.06% of homes in the Bay Area are facing foreclosure.
High foreclosure activity in San Jose, CA continues to be driven by:
- Lingering high unemployment rates
- Strict bank lending standards
- Reset of the last of the teaser rate loans from the 2006/07 era
It doesn’t look like unemployment or slow bank lending will end soon, so expect foreclosure rates to hover at historically high levels.
The high levels of distressed homes mean ongoing pressure on the San Jose home market. And that means opportunities for bargain purchases of short sales and bank owned properties will continue. San Jose home buyers need to be prepared to take advantage of these opportunities by having strong credit and working with a solid mortgage professional. Make sure you qualify for the financing needed to purchase a home. Financing is difficult these days – the banks want everything documented and are very picky about who they’ll loan to.
Here’s an update on San Jose, CA short sale listings as of October 22, 2010. Short sales continue to be a significant portion of the San Jose market with 877 units listed as short sales – 35% of total listings. The median price of listed short sales is $329,000. Short sale real estate in San Jose is rising with an increase of 136 short sale homes on the market since July.
Two and three bedroom homes have the highest share of San Jose short sale inventory with median list prices of $245,000 for two bedroom homes and $350,000 for three bedroom short sales. Nearly 50% of the real estate market in San Jose is short sales or bank owned properties, indicating that properties on the way to foreclosure will continue to be an influential part of the local market through 2010 and beyond.
My 16 year old son recently discovered a saying that anyone who works for a living likely knows: “The beatings will continue until morale improves”. That’s how I see the real estate market – the short sales will continue until morale (unemployment) improves. The Mortgage Bankers Association released it’s 2nd quarter analysis of mortgage delinquencies last week and 13.97% of loans are behind at least one payment or in foreclosure, foreshadowing continued strong short sale and bank-owned inventory in most regions of the country.
The continuing high level of delinquencies reflects the 2nd wave of pain washing through the real estate market. Through 2009, the beatings were the resetting of teaser rate loans and the lock-up of credit in the financial system. People who couldn’t afford the “real” payment on their house got in trouble in this wave of beatings.
Today’s new delinquencies are driven by the high unemployment rate. Now homeowners who could afford their payment are falling behind because they no longer have the income to make their payments. Until the economy improves significantly and unemployment drops below 7%, expect short sales (the beatings) to continue.
NAR (The National Association of Realtors) also reported that existing home sales dropped 27.2% in July versus July of last year to the lowest level in 15 years as overall inventories of existing homes for sale increased. In related news, First American CoreLogic reported that California is one of the leading short sale states.
San Jose is not isolated from these trends and we continue to see short sales come on the market at a strong pace. Expect inventories to climb in San Jose over the coming months as buyers are cautious and banks make it easier to short sell.
According to a recent article in CNN Money (Home prices show stability after modest gain), short sales and foreclosures account for 50% or more of sales in some metro areas. The high level of sales are driven by the sheer number of homeowners behind on their payments – 14%+ in California and San Jose – and by the discounts buyers are finding in short sales and foreclosures. Short sales and foreclosures are averaging a 27% discount versus conventional sales according to a study by MIT economist Parag Pathak and Harvard researchers John Campbell and Stefano Giglio.
It looks like short sales and foreclosures will remain a significant portion of the San Jose, CA real estate market for the rest of 2010 and probably most of 2011. If you’re planning to purchase a home in San Jose, make sure your strategy includes short sales and foreclosures.
According to RealtyTrac, the average discount on pre-foreclosure properties sold in California in the 2nd quarter of 2010 was 28.3% below the typical price of comparable homes that were not in foreclosure or short sale.
Does it make sense to avoid short sales? Not if you’re looking for the best price and you have the patience, persistence and time to get through the extended process for short sales.