Here is a table that illustrates the number of sales and percentage of distress sales over the last 3 years in Eagle Rock 90041. The question is, what does it mean? There’s a flipflop from a greater number of foreclosures in 2009 to more shortsales in 2011. Distress sales as a whole dropped in 2010 and have increased again so far in 2011.
My guess, and it’s educated but still a guess, is that the lenders were very resistant to doing shortsales early on and have finally bowed to the inevitable. As more distressed homeowners are able to sell short, there are fewer foreclosures. The more positive numbers in 2010 I attribute to the peak of the “double dip.” Or you might look at the whole thing as our thudding along the bottom.
There is a lot of talk about “Shadow Inventory,” which is distressed properties that might come on the market. This includes properties that have notices of default filed (the homeowner has stopped making mortgage payments), have notices of trustee sale filed (they haven’t brought the loan payments current and are scheduled to go to foreclosure sale), REO or bank-owned or 3rd party owned (sold at trustee sale). It also includes properties that are “upside-down” which means the property is worth less than what is owed. This can be a huge number and there is no way to track what it is. The fear of “Shadow Inventory” is what if a lot of these distress sales come on the market at once? What will that do to the rest of the market
Personally, I think that is a big “if.” If it hasn’t happened yet, why would it happen now? One reason could be if we had a major economic setback. But believe it or not, we have actually been out of the recession and experiencing a slow (excruciatingly slow) recovery for the last 2 years, according to the National Bureau of Economic Research. Another reason could be a drastic change in mortgage lending in terms of either interest rates or underwriting guidelines.