One of the indicators of the health of a real estate market is the percentage of distressed sales, which includes both Bank Owned (REO) properties and Short Sales. Markets with higher levels of distressed sales will generally see more downward pressure on prices, and distressed properties tend to sell for less than a “normal” sale, mostly because there is stronger motivation on the part of the seller in distressed situations.
Here is a chart showing the % of distressed sales in the Tri-Valley cities of % of Active Listings currently on the market, and the % of closed sales last year.
As you can see, in both Livermore and Dublin almost 50% of the current homes for sale are distressed sales. These two cities also had the highest percentage of distressed sales that closed in 2008, with 33% and 28% respectively.
San Ramon had the next highest percentage of distressed sales, with 38% of the current homes for sale and 21% of the closed sales in 2008 consisting of distressed sales.
Pleasanton and Danville had similar numbers. 24% of the current homes for sale in Pleasanton are distressed sales, and 12% of the closed sales in 2008 were distressed. In Danville, 21% of the current homes for sale are distressed sales, as were 10% of the closed sales in 2008.
Alamo and Blackhawk, not surprisingly, have the lowest percentage of distressed sales in the Tri-Valley. 12% of Alamo’s current inventory and 9% of Blackhawk’s current homes for sale are distressed sales, and only 4% of the closed sales for 2008 were distressed sales in each each community.
As a point of contrast, let’s look at the distressed sales activity in Brentwood and Antioch. 93% of the inventory in Antioch and 74% of the current inventory in Brentwood are distressed sales. And in terms of closed transactions in 2008, 68% of the sales in Antioch and 54% in Brentwood were distressed sales.
Not surprisingly, the higher the percentage of distressed sales, the weaker the market in terms of downward pressure on prices. The good news in all of this is that sales activity in the more distressed markets is up strongly, even though prices are still trending downward. This is the first step in stabilization, and absorption rates are up as buyers and investors purchase distressed sales at bargain prices. Most analysts expect to see a strong increase in sales in the markets that have been decimated by foreclosures.