By the usual historical markers, the Sacramento-area real estate market is stabilizing, a model for recovery nationally.
But a particular wild card hangs over this fledgling recovery in Sacramento, making it anything but certain or predictable. More than 20,000 troubled homes are growing into a massive "phantom" inventory that could potentially be unloaded onto an already fragile housing market.
According to distressed property tracker ForeclosureRadar.com, most of the 4,449 homes foreclosed the past four months in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties are not yet listed for sale. And now the Contra Costa County firm says an additional 17,792 homes in the six-county area - all in some stage of the foreclosure process - represent a potential new supply of bank repos for roughly the next six months.
- As of mid-May about 12,000 of these capital region properties had received notices of default, the first foreclosure warnings issued after several missed payments.
- About 5,800 are within a month of auctions on courthouse steps, a move that can be postponed. Most are likely to attract no bids at the courthouse, then revert back to lenders who typically list them in the real estate market as repos.
As the 2009 summer sales season begins with repos accounting for two-thirds of sales in Sacramento County, no one is certain whether nearly 18,000 new troubled homes will actually come onto the market. The numbers could be blunted by more-aggressive loan modifications or short sales in which lenders accept less than owed to avoid the higher costs of foreclosing. California also is launching a new 90-day foreclosure moratorium in June for lenders that don't work hard enough to help borrowers stay in their homes.
But if thousands of these properties do become repos the question is: Will they be released in a big wave that destabilizes supply and demand or a trickle that helps sustain it?
Ultimately, this critical factor in the region's housing and economic recovery is up to distant banks tangled in the worst financial crisis since the Great Depression. Banks largely call the shots now in the Sacramento real estate market, and few outside the giant institutions have a good grasp on their strategy.
"Everybody is holding their breath to some extent to see which way the wind blows," said Stuart Feldstein, president of New Jersey-based SMR Research, which tracks the U.S. mortgage industry. "This is a very mixed-up period."
The ForeclosureRadar estimates clearly reveal a growing backlog of distressed properties in recent months, even as banks have curbed foreclosures. Many have turned to foreclosure moratoriums and other delays while awaiting federal government policies.
"There's no lack of properties to turn into repo inventory, and it's not happening," said Sean O'Toole, chief executive of the foreclosure tracker.
Recent foreclosure slowdowns have sharply cut the supply of bank repos in the Sacramento market since the beginning of the year. The competitive bidding and upward prices that resulted have prompted some real estate agents to start calling bottom. It's a call that Lyon Real Estate head Mike Lyon has dubbed "fool's gold."
Lyon is watching for a large new wave of repos in the market within 90 days. Bob Bronswick, head of Coldwell Banker's Sacramento-Tahoe division, says it may start in June.
Speculation abounds about why bankers have let so much distressed inventory build up without foreclosing. A major theory is government pressure to work harder with borrowers and to modify more loans.
But O'Toole believes that banks also kept foreclosure losses off their books while preparing for recent "stress tests," and are still awaiting a federal plan to unload their "troubled assets."
Bankers and their associations deny that's the case.
"The view that they've been holding them before the stress tests are completed is flawed," said Rod Brown, chief executive officer of the California Bankers Association. Brown said the drop in foreclosures and rise in distressed properties is "a function of the foreclosure moratorium."
--Call The Sacramento Bee's Jim Wasserman, (916) 321-1102 or email him at [email protected]. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.