Foreclosures Thumping Down Real Estate Values by 29.3%

August 25th, 2008 | Tags: Foreclosures

Foreclosures are thumping down real estate values by 29.3% thanks to the banks off loading thousands of houses it had foreclosed upon in a panic mood. Handling so many units is beyond their capabilities, apart from the fact that the local communities, politicians and government at all levels are critical about the vacant houses.

In the Bay Area the average price in July was about 30% below the normal level – something that has not been seen in the last four years. A third of all the houses that have been sold in the 19 county regions are from the foreclosed category, according to DatQuick based in San Diego.

About twelve months ago 4.2% of the sales came from foreclosed units. Bank owned houses are selling fast in numbers especially in those regions where foreclosures have been most intent. The heavy discounts offered by banks are attracting investors who are buying up bulk properties. This could bode well for the real estate market allowing it to get back on its feet after the recent bout of depression.

Ken Rosen of Fischer Center for Real Estate and Urban Economics (UC Berkeley) opines that the foreclosure waves are making the market appear worse than what it actually is. The headlines are screaming that house prices are plunging. But it should read that foreclosed house prices are plunging. According to statistics there is a decline of only 5% to 10% in the core regions of Silicon Valley, Berkeley, Oakland, Marin and San Francisco. This is excluding the foreclosure sales.

DataQuick analyses that the average price of new as well as old houses and condos in the Bay Area, fell to $470,000 – the lowest in 53 months. A year ago it was $665,000 and thus noting a slump of 29.3%. The resold house prices dropped by 34.3% from $738,500 to $485,000. Thus the median prices gets skewed when counted together with new and old units. An increase of sales of old houses brought down the average price.

Solano County saw the largest number of foreclosed homes being sold. Two thirds of all the sales came from the foreclosure listings. The volume of sale jumped by 56%. San Francisco recorded the lowest number of foreclosed house sales – the number making up 4.6% of the total units that were traded. It was the new condos that were mostly sold.

Discounted sales are great news for two groups – the investors and first time nest builders.