We read daily about the credit crunch and the serious downturn in the housing market. What about right here on the Mid Peninsula? The theory is that sub prime loans and other loans with initial low interest rates that have high adjustments lead to property owners who are unable to maintain their property ownership and have to sell under distressed conditions. Here on the mid peninsula we have been relatively free from distressed sales but it is real estate so once again it is all about location, location, location.
Distressed Sales in Active Single Family Residence Listings
Palo Alto, for example is still in a serious inventory shortage. Most properties that come on the market that are well marketed and well priced sell right away and, more often than not, with multiple offers. We still see situations where the sold price is 10 or 20 percent over the list price. There are virtually no distressed sales in Palo Alto and when the sale is distressed it still happens quickly and with relatively little pain.
Next door, in East Palo Alto, there is exceptionally high inventory. That is where the financing may have included riskier loans and as a result 6 out of 10 active listings were short sales or sales of bank owned properties. Typically, distressed sales happen not because someone wants to move but because they have to move. That means that they are added to the market which is made up normally of people who want to move because of life events (upgrading, downsizing, relocating). Increased supply coupled with demand that is attenuated by negative news climate leads to lower prices exacerbating the impact of the distressed sale in the first place. Parts of Redwood City have been hard hit, too; about 35% of the active listings are distressed. Almost 90% of the short sales in the mid peninsula were in these two cities.
The only mid peninsula community that had no single family short sale active listings was Redwood Shores. Other areas had just a few (Mountain View – 1, Lost Altos – 1, Palo Alto – 1, Menlo Park – 12, Atherton – 1, San Carlos – 1, Belmont – 2)
Definition: A short sale is a real estate transaction where the seller is in financial difficulty and asks the lender to accept less than the full principal and interest due upon the sale of the property. It is an alternative to foreclosure and the Bank is sometimes willing to cooperate because it may be less costly than taking the time and expense to go through foreclosure and then manage the sale itself. Based on information from title company experience, only 2 out of 10 short sale transactions actually close escrow. The other eight fall by the wayside due to the inability of all the parties to reach agreement – how short a haircut the bank is willing to take, how much the seller is willing to put in to the deal (taking out nothing is a given) and how much the buyer is willing to take on the risk of stepping into a highly uncertain market.
This is the first of a multi-part post on how short sales affect the Mid Peninsula Real Estate Market.
