San Diego is not the only city in the country experiencing a dramatic shortage in available homes for sale. It was just last Fall that streets were covered with For Sale signs, and buyers still had tremendous bargaining power to purchase homes under their asking price. Today's real estate market is very different in many parts of San Diego County and counties around the country- just look at an example of how low the inventory is in San Diego. Amazingly low interest rates have encouraged previously timid buyers to come out and purchase a home. Simultaneously, the inventory is shockingly low, which is causing some bizarre behavior in what appears to still be a depressed market- multiple offers over the asking prices.
So what is actually going on in San Diego's housing market? Is our market recovered? There are a few options being posed by the mass media, like an one suggested by a Wall Street Journal blog on June 11, 2012, which quoted CoreLogic economists as saying that "the presence of negative equity not only drives foreclosures, reduces the availability of purchase down payments and impedes refinances, but also restricts the ability of owners to list their homes for sale as the demand side of the market improves." Basically, CoreLogic believes that because the housing prices dropped, homeowners aren't willing to sell at the lower price, so the inventory doesn't increase. This idea is echoed by the blogger that homeowners are basically waiting for the market to rebound before they list their home for sale.
I agree that homeowners do not want to sell their homes at the dramatically reduced prices in Southern California if they can just wait another year or two and get back some of the lost equity with higher prices. But I disagree with the theory that these homeowner's decision of not wanting to sell at lower prices is the main reason for low inventory. How many friends and/or family members do you know that are losing or have lost their home due to foreclosure? Where are those homes in our inventory? Do you have friends/family who have not made payments on their homes in years and yet are still living in the home? Why has the bank not foreclosed on them yet and put the home on the market for sale? These homes in question are part of the thousands of homes called "shadow inventory". They will eventually be listed for sale and will have an impact on the housing market pricing when they are added to the inventory.
I believe that the lack of inventory is because the banks are holding back this shadow inventory. There are a number of reasons they would do this, but the assertion that it's because they have "slowed down their foreclosure processes after being caught fraudulently processing the paperwork" is bogus. They have slowed down the process because they are in control of the marketplace. What happens when they hold back some of their inventory? We're witnessing it right now. The prices are rising, and quite sharply in some areas, buyers are giving up seller concessions just to win the bid, and the banks win all around.
It isn't all bad news. As a result of homeowners seeing their neighbors' homes selling quickly, many homeowners are deciding now is a good time to sell and they are adding their home to the low inventory and getting more money than they would have last year. Some are now able to move up to a newer or larger home because of the slight rise in the home prices of their area. My word of caution to my homebuyer clients is to tread slowly into your offers. Look carefully at the recent sales and base your offer on REAL numbers- the comparable sales that your appraiser will use when evaluating the deal. The "shadow" inventory is real. And most of all, foreclosures have not stopped. Although they may be slowing in some area, slowing down does not mean recovered.