Moreno Valley, Calif. – Here on Kentucky Derby Drive, the houses with “for sale” signs on their lawns boast Craftsman-style facades, roomy floor plans and kitchens with granite countertops.
Four of the nine have something else in common: They’re owned by lenders.
Saddled with properties the borrowers could no longer afford, banks and mortgage companies have joined the legions of individual homeowners trying to sell on the open market – and at a pace not seen in more than a decade.
The trend could further weaken a housing market already pinched by high inventories and tougher lending standards, although experts say it’s too soon to tell how extensive the damage will be.
“They will make a contribution to the erosion in property values,” especially in neighborhoods that attracted marginal buyers with shaky credit, acknowledged Robert Kleinhenz, deputy economist for the California Association of Realtors.
Currently, nearly 3 percent of the homes for sale in Southern California are owned by lenders, according to home-search website ZipRealty, up from less than 1 percent a year ago.
“Volumes are increasing, definitely,” said Patrick Carey, the executive in charge of foreclosed properties at Wells Fargo & Co.’s real-estate division. The San Francisco-based bank is managing more than 800 bank-owned homes for sale in Southern California.
During the real-estate downturn in the 1990s, lenders eager to unload foreclosed properties sold them at steep discounts – helping lower values overall, Kleinhenz and others say.
So far in the current cycle, lenders aren’t offering fire-sale prices, but that could change if sales remain slow and lenders slash prices to clear inventories.
“Like any seller, they have a cost to carry,” said Mike Ela, founder of home-valuation service “Eventually they will feel the heat of having a nonperforming asset on their books and lower the price.” Lenders, however, say they are being careful to ensure that doesn’t happen.
“The impact on the neighborhood and the community is vital with us,” Carey said. “We don’t want to flood a community with below-market-priced homes and cause further deterioration.”
One study suggests that discounts are likely to become common if foreclosures – which increased 18 percent in Southern California from March to April – keep rising.
Owners are likely to discount their asking prices 20 percent or more in communities where foreclosed homes make up 8 percent or more of sales, according to the study by Christopher Cagan, an economist with title insurer First American Corp.
Currently, about 3,000 of the 120,000 homes listed for sale in the five-county Southern California region are owned by lenders, according to Emeryville, Calif.-based ZipRealty. That’s up from fewer than 10 homes a year ago.
Experts contend that bank-owned doesn’t necessarily mean bargain, at least at this point in the market cycle.
Each foreclosed home represents a failed loan, however, and some lenders were reluctant to discuss their swelling inventories.
