Notice how people think that foreclosures automatically mean lower prices? 

The pundits and mainstream media talk about a surge of foreclosures plunging us into the abyss; that prices would plummet. 

Why?  I don’t see any REO listings being given away around here, if anything they are going for retail, or retail-plus because servicers are marketing the REOs correctly.  They clean them up, put an attractive price on them and make them easy to see.  After letting them sit on the open market for a few days, they pick a winner.  It is a very effective marketing strategy.

If servicers would foreclose on more properties in North SD County Coastal, creating more REO listings, three things would happen to help put more of a floor in the market:

1.  They’d provide more well-priced inventory for waiting buyers.

2.  They’d help convert lookers into buyers.

3.  They’d create some certainty that we need not fear foreclosures.

There are 656 SFRs on the NOD and NOT lists in the North SD County Coastal region. If buyers saw some real market clearing they’d have more confidence that future foreclosures are a good thing. If the market was really hopping, it would put a scare into the deadbeats too, and maybe some of them would pay up.

Here’s a year-over-year comparion of the detached sales between Sept 1-to-Dec 31:

REO vs. Non-REO # of sales $$/sf SP:LP DOM Average SP Avg SF
2009 REO
$296/sf 101% 35 $820,863 2,960
2010 REO
$331/sf 98% 40 $878,168 2,851
2009 Non-REO
$411/sf 95% 85 $1,142,691 2,832
2010 Non-REO
$394/sf 96% 86 $1,181,358 3,084

The difference between REOs and Non-REOs is the quality of product. The servicers aren’t giving away houses for 10% to 20% less, rather they are stuck with the inferior homes that the owners wouldn’t fight to keep, or short sell. When they do list homes of better quality, they can’t underprice them – the marketing system ensures that they get bid up to retail, or higher, pricing.

Servicers, please keep the foreclosures coming!

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