Some people believe that Santa Monica, like many other areas around Los Angeles, has not reached the bottom level of its current market price point. They comment about the bank REO (Real Estate Owned) pressure on prices, short-sale activity, and an assumed large volume of similar financially-distressed owners whose properties will soon need to be sold.
Anecdotally, this has not felt to be the case for many months. We have noted multiple offers in many cases, sales levels being maintained, and inventory not increasing significantly in comparison with the rate of sales. For example, at the current rate of sales of Santa Monica homes, there is less than a seven month level of inventory of homes available, which equates to a market that is fairly balanced between buyers and sellers.
In order to try to ascertain whether the financially-distressed property numbers might have a greater future impact, we have analyzed the past year of local sales, with the following findings.
The REO market has been relatively small in Santa Monica so far this year. Only 8 homes have been listed in the past 12 months in Santa Monica, with two remaining on the market today. Those that sold averaged five percent lower than the prices at which they were listed. There are currently approximately 45 additional homes owned by lenders, which obviously will be put on the market for sale. With approximately 103 homes for sale at present, depending on the rate that these REOs come on market, there could be substantial impact on the overall marketplace.
The remainder of the “shadow inventory” consists of approximately 54 homes which have been scheduled for repossession by banks at public auction. Many of these may eventually become REOs. However, a significant number of these will be successfully sold as negotiated short-sales.
A review of the last 12 months’ local short-sale activity showed that 28 homes were listed and 13 of these have already sold, with six others in solid escrows. Some of the remaining active short-sale listings have accepted contracts which are in initial stages of being negotiated with the lenders.
If all of the Santa Monica homes that are currently bank-owned (or in the process of being such) were to come on the market, it would equal approximately 55 percent of the number of homes currently for sale. This would be similar in magnitude as in the various areas of the country where short sale and REO activity is 50 percent or more of the market, and the shadow inventory is also considerable. So far this year, only about 10 percent of the sales in the Santa Monica have been REOs or short sales. Naturally, only time will tell. However, it would appear that there could be increased financial pressures on our local market due to the REOs or shadow inventory.
Michael Edlen and his Team are experienced distressed property owner specialists, certified by the national Association of Realtors as a short pay and foreclosure resource. They may be reached at 310.230.7373 or Michael@MichaelEdlen.com.