Surge of Foreclosures Likely in 2012

Banks in November scheduled more than 26,000 homes to be sold at California foreclosure auctions, a 63 percent increase from October and a sign that a surge in discounted, bank-owned properties is on track to hit the market next year, according to the Los Angeles Times.

What does this mean for the residential real estate market in Encino? Brace yourself, because we might see local property values drop even further.

Over the past year, the number of foreclosures hitting the market slowed significantly. That was partly due to the “robo-signing” scandal, in which the validity of certain foreclosure actions was brought into question and banks backed off for a while.

In Encino, short sales surged during this time and currently make up a large percentage of properties on the market. These listings, which often sell at discounted prices, exert downward pressure on home prices. Remember: Home values are based on the sales price of comparable homes in the area.

Banks ideally don’t want to foreclose. The process is expensive, and they have no idea what condition the home will be in once they take full ownership of it. Foreclosures also look bad on their balance sheets.

But when they do foreclose, they unload the properties as quickly as possible. If they’re not able to sell them at market value, they discount properties until they move. This creates even more downward pressure on local home values.

The good news is that Encino didn’t get hit as hard by the real estate downturn as other regions such as the Central Valley and Inland Empire. So I’m not convinced that the 63 percent increase in foreclosures directly relates to our local market.

The other bit of good news is that a further drop in home prices opens up opportunities for new buyers to enter the market and for existing homeowners to move up. You may have to sell your existing home at a discount, but you can also buy at a discount.

My recommendation is that if you’ve been thinking about selling, it’s better to do it sooner rather than later. We still don’t know how many foreclosures will be hitting the market or when we will hit the official bottom.

If you’re thinking about buying in Encino, there are surely deals to be had. But buy yourself a new pair of sneakers, because the amount of time and footwork it takes to find the home of your dreams may be increasing.