Feeding Frenzy in Entry Level Homes

Since mid-November we have seen a breathtaking jump in sales of single-family homes in the South County in the entry price ranges ($400,000 and down). From a point where we had about 175 homes on the market in mid-November with only about 50 under contract in this price range, we have moved to about 180 homes on the market with more than half under contract! Many of these sales were foreclosures and were driven by the recent decline in conforming mortgage interest rates (below 5%). We have been seeing multiple offer situations on the nicer properties with many selling for more than the list price. A real feeding frenzy out there!

One new wrinkle I have noticed the past few weeks has been the lack of new foreclsoures coming to this market! Of the twenty or so most recent listings in this price range, only one has been a -foreclosure. The remaining nineteen are short sales. This may have an interesting effect in that prices have been set primarily by the foreclosures and what a bank is willing to take for a property to clear it off their books. If the short-sale dominance in listings continues, look for a possible rise in list prices as sellers and agents set prices (to be confirmed by the lender eventually), not the banks. In general, banks are getting 70 t0 80 cents on the dollar of total loans outstanding on a short sale and 50 to 60 cents on the dollar of total loans outstanding for a foreclosure.