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Are We In An Artificial Boom Market?

August 19th, 2009 categories: Benicia, Buying, Fairfield-Gr Valley, Foreclosures / Short Sales, Selling, Solano, Suisun City, Vacaville, Vallejo, Viewpoint

With Hundreds Of REOs Being Held Off The Market, Is The Current Market Boom Just A Temporary Thing?

Wizard

For months now, the local real estate market here in Solano County as well as throughout the entire Bay Area has been getting stronger and hotter.

But nowhere has it been stronger than in places like Vallejo, Fairfield and Suisun, which rank among THE most affordable cities in the entire Bay Area.

It’s a classic supply and demand situation.

On the supply side, if you follow my Weekly Real Estate Report, you know that the inventory has plummeted by about 75% throughout these cities since the first of the year.

And on the demand side, as prices became incredibly affordable, homes in these areas became instantly attractive to an eager cross-section of first-time buyers, investors, and move-up buyers.

Demand remains at a fever-pitch, with multiple-offers on most affordably-priced homes in the region. And with the shrinking supply, it’s not uncommon for a well-priced listing to generate perhaps several dozen offers.

Back in April, my sense was that the market had reached bottom a month earlier, in March.

I still stand by that call, but recently I began to wonder: is this market for real…or are we actually just in the midst of an Artificial Market?

Let me explain.Pull Quote

As I mentioned a moment ago, the current boom market is classic case of supply and demand.  Lower prices with fewer homes to choose from creates a frenzied market.

The lion’s share of home sales in cities like Fairfield, Vallejo, Suisun, and to a lesser extent Vacaville and Benicia, have been on distressed properties (bank-owned or short sales).

Even though short sales are usually very attractively priced, because of the length of time a short sale escrow can take (often 3-6 months), the real hot commodity since the first of the year has been bank-owned homes (aka foreclosures/REOs).

Between last November and the end of this past March, most of the big banks temporarily stopped processing foreclosures as part of a voluntary moratorium that started during the holidays and was later extended to allow the Obama Administration time to come up with its economic recovery plan.

Once the moratorium ended, everyone braced for the inevitable flood of new listings that was bound to occur once the banks resumed foreclosure proceedings and brought all these new REOs to market.

Well, so far that flood hasn’t happened. We’ve seen a small trickle here and there, but nothing like what everyone expected.

So what happened?

Did all those people who were temporarily spared from foreclosure between November and March figure out a way to avoid losing their homes?

Did the banks all decide to instead modify the loans for most of these under-water homeowners?

Or did they simply decide to postpone foreclosure proceedings indefinitely for most of their upside-down borrowers?

Well, the answer to all three questions is No, No and No!

In April, the banks picked right up where they left off in November and foreclosure proceedings resumed. So the expectation was that within a month or two, the first new batch of foreclosures would hit the market.

But the big wave would come shortly thereafter — once all the loans that were in default back in November worked their way through the foreclosure pipeline. And that didn’t even take into account all those new mortgage defaults that would have occurred in the meantime.

So we all figured that it might take a month or two for the first post-moratorium foreclosures to actually hit the market. And in the weeks to come, as more and more foreclosures came on the market, we expected the inventory would grow, thus satisfying the appetite of a hungry group of anxious home buyers, all of whom were eagerly waiting for this next flood of foreclosures.

Well, here it is late August, and we’re still waiting.

Tomorrow, Part 2: Have The Banks Created An Artificial Market?

Further Reading

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This entry was posted on Wednesday, August 19th, 2009 at 11:03 pm and is filed under Benicia, Buying, Fairfield-Gr Valley, Foreclosures / Short Sales, Selling, Solano, Suisun City, Vacaville, Vallejo, Viewpoint. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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