So many foreclosed homes are for sale in Southern California that these distressed properties will soon dominate the market, forcing prices down even further.
About half the homes sold in the region in August had been repossessed, according to figures released Wednesday by the real estate tracking service MDA DataQuick, driving prices down 34% over the previous year to a median of $330,000.
That brought out the bargain hunters, who pushed sales up for the second month in a row in August.
But with thousands of additional homes being repossessed by banks each week, it won't be long before most properties sold are foreclosures, experts said.
"We'll certainly see more than 50% foreclosures," said Sean O'Toole, chief executive of ForeclosureRadar, a seller of default data.
O'Toole said repossessed properties should make up most sales in the region by next month.
Regionwide, foreclosures climbed to 45.5% of sales in August, up from 10% a year ago. In hard-hit Riverside County, about two-thirds of previously owned houses sold last month were in foreclosure.
The increase in sales of repossessed homes carries ominous implications for home prices. That's because the financial institutions that have taken over the properties are trying to sell them quickly and recover as much of the loans they made as possible.
Although few individual homeowners are willing or able to sell their homes for less than their mortgage amount, banks often sell foreclosed houses at a substantial loss to clear their rapidly growing inventory.
Potential buyers in Southern California have responded to the low prices. Sales in the region were up 9.1% in August from a year ago, according to MDA DataQuick, a development that heartened some in the industry because it came on the heels of a July increase that was the first monthly year-over-year increase since 2005.
But that doesn't mean a recovery is on the way.
"Foreclosure activity remains high, credit is still tight, affordability remains strained on the coast, and the job market is soft," MDA DataQuick President John Walsh said.
In addition, the turmoil in the nation's financial markets may make it harder for buyers to obtain credit, which would drive prices down further.
Richard Green, director of USC's Lusk Center for Real Estate, said a foreclosure-dominated market was not necessarily a bad thing because the low prices could speed the market's price correction.
