Short sale pies are food for thought.

I am heading to the Inman Technology Conference in New York tomorrow morning under the cover of darkness, thanks to our time difference. This is causing me much anxiety. Not being what you would call an organized, “plan ahead” kind of girl, departing for the airport at 5:00 with a packed suitcase and a made-up face that doesn’t suggest I was the victim of a paint ball attack is going to require an extra level of effort.

Like Scarlett said, I can’t think about that now. I will think about it tomorrow.

What I can do this morning is satisfy my curiosity as to the impact short sale listings are having on our San Diego real estate market. Short sales occur when insufficient equity exists to completely settle the obligations of a transaction. Obligations include the obvious outstanding loan balance(s) but also transfer taxes, real estate fees, and other settlement costs. In a short sale situation, the lender(s) will typically agree to accept less than that which is owed, forgiving the balance. Short sales can, of course, have tax and credit implications to the seller, but that is a subject for another time.

Any distress sale can have an effect on the real estate market, and short sales are no different. The short sale seller is going to be a little less concerned with “getting top dollar” and a little more concerned with just getting out from under the loan. If you are a seller with enough equity to close the transaction yet your neighbor is not, your market value could suffer as a result. You may be aware of the unique circumstances which inspired the fire sale next door, but once they close escrow, a comp is a comp. We are seeing it happen all too often.

Here is the breakdown for San Diego County and for a few sample communities. Keep in mind that this data was obtained from the Sandicor Multiple Listing Service (MLS), and short sales were identified as those indicating that the sale would be “subject to lender approval.” Not all agents remember to check this little box, and not all sellers who end up short start out that way, so your mileage may vary. In other words, its likely a little worse than represented here.

Without beating my head against the wall on this, a day I don’t want to think too hard, I will venture a couple of observations. Attached homes (condos) are generally in a bit more of a pickle than detached. This is not unexpected, but is a potential omen. So go the condos goes the market, eventually. For an excellent refresher on the resale housing trickle-up theory, you should read Kevin Boer’s recent article.

I threw La Jolla in there for kicks and as it represents an extreme - Extreme affluence and extremely close to the beach. Both location and demographics are likely at play here. Duh. Not shown are the results for Carmel Valley (92130). Also coastal and affluent (not quite as richy-richy as La Jolla, but who is?), the trends were very similar. Also not shown is an outlyer at the other end of the location and median price spectrum, San Marcos. Results here were similar to Mira Mesa.

Anyone who follows the market is aware of the increasing number of short sale offerings in the aftermath of the irresponsible (yes, irresponsible) lending and borrowing practices of the past several years, but even I have to admit I was surprised by the flavors of my little pies. And, I am not at all convinced that we are anywhere near finished with the slicing.