Soaring Sales of Foreclosure Properties in the Bay Area

In California’s Bay Area, sales of foreclosure properties increased to over 5,000 units in the last several months. About 67 percent of total monthly sales are purchases made by first-time homebuyers and investors.

According to Andrew LePage, analyst at San Diego housing research firm MDA DataQuick, more and more people are deciding to buy a home as more foreclosure properties are being sold at bargain prices. Large inventories of bank-owned foreclosure properties and predictions of more foreclosures have put home prices at levels very attractive to first-time homebuyers and investors.

In RealtyTrac’s chart of foreclosures by state, California is among the top three in foreclosure rates and in number of foreclosure properties in 2008 and in the first two months of 2009.

The first of several factors contributing to increased home sales in the Bay Area is the low median price of homes. Because of the glut of foreclosure properties in the state, the median home price in February dropped to $295,000, staggeringly much lower than the $720,000 median price in 2007. More than 50 percent of all houses sold in February in the Bay Area were priced below $300,000.

Another factor is the availability of financing backed by the U.S. Federal Home Administration. Previously, FHA loans were not popular in the Bay Area because these loans were only for lower-income buyers and low-priced homes. But after FHA increased its loan limits to $729,250, numerous buyers applied for FHA-backed loans, accounting for almost one-fourth of all mortgage loans in the Bay Area in February.

The availability of foreclosure properties and existing homes priced at $200,000 has also increased sales, according to Peter Harris, an agent with Novato-based Bradley Real Estate. The low down payments and the FHA loans have been encouraging low-income first-time homebuyers to grab price opportunities in the housing market.

LePage said FHA loans have been significantly reducing excess inventories of bank-owned foreclosure properties by rejuvenating the first-time home buying sector. Large numbers of first-time homebuyers attracted by FHA loans will ultimately contribute to the stabilization of the mortgage and housing sectors.

Another big reason for the Bay Area’s increased home sales is the investor factor. In February, the number of people buying homes for investment purposes has increased from 10 percent in 2007 to 18.7 percent.

Lastly, the tax credits offered to first-time homebuyers have also rejuvenated home buying. Just like in other areas of the country, people in the Bay Area who have been delaying their home purchases waiting for further home price decreases and lower-priced foreclosure properties have decided to buy a home because of the tax credit.

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