It’s not difficult to find gloomy Real Estate prognostications, most of them focused on the huge supply of foreclosure “shadow inventory” that is expected to hit the market soon.  Estimates range from around 2.7 million to as high as 7 million foreclosures that will soon be unleashed on the national housing market.

Waiting for the Big Wave

The curious thing is that the impending shadow inventory bomb has been “coming soon” for two years now.  For example, this typical analysis from April of 2009:

Here is more on the story from Mr. Mortgage “California Foreclosures About to Soar . . . Again”: “Are you ready to see the future? Tens of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season . . .

“Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days. . . .

“The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium.”

A Different Take

In April of 2009 Steven Thomas, President of Altera Real Estate wrote about “foreclosure shadow inventory” in his Housing Report:

Currently, only 15% of the active distressed inventory is a foreclosure. One year ago, it was at 20%. At its height, it was at 24%. Today’s active distressed inventory totals 4,006, a drop of 86 in the past two weeks. 613 of the 4,006 are foreclosures, meaning that the remaining 3,392 are short sales. Let’s just assume that the rumors are correct and that there had been a moratorium and that lenders were intentionally holding off foreclosures from the market. Even if the total surpassed the record mix of foreclosures, 24%, and rose to 30%, the total would only rise to 1,201, almost doubling from its current level. Yet, what everybody has failed to realize is that there is major pent up demand for foreclosures. Just ask any real estate agent or buyer that has written an offer on a foreclosure. You will quickly find that the norm is multiple offers, accepted offers at or above the list price, and losing property after property due to the bidding wars. This is a reality of today’s market that is most often misunderstood. When a buyers journey begins in today’s market, they have the expectations of isolating a foreclosure and getting a heck of a “deal” buy offering thousands, if not tens of thousands, less than the asking price. Buyers fail to consider that prices have already fallen between 30% to 40%. Almost all buyers have to learn the hard way about the realities of today’s market. There are 613 foreclosures in all of Orange County today and demand is at 938. The expected market time for foreclosures has dropped all the way down to .65 weeks, about a 19 day market, a deep, deep seller’s market. So, throw in even double the current number of active foreclosures and they will quickly be eaten up by the insatiable appetite for foreclosures. Given current demand, doubling the foreclosure inventory will increase the expected market time to 1.28 months, about 5 weeks, still a major seller’s market. The real story is that short sales are currently more successful than they were a year ago. Today there are 3,392 short sales on the active market and demand is at 1,106, representing an expected market time of 3.07 months. One year ago there were 4,379 short sales on the market and demand was at 444, representing an expected market time of 9.86 months. Some conclusions can be made based upon all of this data: foreclosures are hot; short sales are hot; expect a lot of competition; and, any increase in foreclosure activity will just help relieve current pent up demand.

Short Sale is King of the Foreclosure Wave

Where do we stand today?  Active Orange County REO listings have fallen from 613 last April to only 381 today.  That’s about a 5 to 6 week supply, based on the 293 Bank Owned homes that closed escrow in January, and around 5% of all the homes listed for sale in Orange County.  The number of foreclosures is even lower in Orange County’s premier cities like Irvine and Mission Viejo, at about 2.5% of the market.  Foreclosures in more affordable cities, such as Santa Ana and Anaheim, are standing at over 10% of the Real Estate market.

Meanwhile, Short Sales have fallen to 2,304 active listings (28% of the market), but those pending sale (in escrow) have climbed to an amazing 4,162 homes – 62% of all homes in escrow in Orange County.  This gives us a clue as to why foreclosures have continued to fall, even as homeowner defaults have continued to climb.  More and more distressed owners are opting for a Short Sale, and banks are moving in the same direction.   Expect 2010 to be the Year of the Short Sale – not the year of the Foreclosure Tsunami.

Where Have All the Orange County Foreclosures Gone? is a post from: Orange County Real Estate-Orange County Homes For Sale