It was reported in the LA Times a few weeks ago that the number of short sales has been greater than the number of foreclosures in recent months. This is better news for sellers than for buyers. Taking a simplistic view, omitting factors like possible tax consequences, short sales are generally win-win scenarios. The bank typically gets a better price for the house and avoids legal fees and holding costs. The homeowner walks away with less impact on their credit score, on negotiated terms and possibly with a credit for moving expenses.

However, there are still many homeowners in California that owe more than their home is worth. Regulations have been a key contributor to the decline in foreclosures but they also slow the pace of homes coming on the market. High buyer-demand and more limitations on the supply of homes coming to market means lower inventory of unsold homes. With inventory at the lowest levels in almost a decade, there is upward pressure on prices. This, in turn, is contributing to fewer foreclosures. It’s not hard to see how the market is becoming more seller-friendly.

The statistics are impressive. The number of homes beginning the foreclosure process are down 83% from this time last year. The number of homes currently in foreclosure are also down.

SLO County Foreclosure Inventories

It is also getting easier to do a short sale. As reported by Bloomberg last month, Fannie Mae and Freddie Mac have started allowing short sales to homeowners that are current with their payments. Beginning in March some homeowners, current on their payments, will be allowed to do deed-in-lieu of foreclosure transactions as well. With Fannie and Freddie owning or guaranteeing over $5 trillion in mortgages, programs like these have potential to really make a difference. If they are not successful then we will likely see a low inventory of homes for sale for a while longer.

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