First of all, when I say foreclosure, I'm referring only to those properties where a Trustee's Deed has been recorded, or if it is on the market, is listed as an REO. Based on my data compiled from local listing services and the county recorder, the number of foreclosures has been declining for the past two months. That's not a significant amount of time, but it rules out that the first month decline was a fluke.

For 23 months the number of foreclosures recorded each month were steadily increasing. September was the first month with fewer foreclosures than the prior month. October has continued that trend. Don't get too excited though...the number of foreclosures is still very high: 1,000 in August, 871 in September, and 520 in October. Those foreclosures all end up on the market, and they comprise a HUGE portion of the listed supply. As of last quarter, REOs were 73% of the sales through the local MLS. So, with 500+ foreclosures happening every month, the supply of homes for sale will remain high, but if the decline in foreclosures continues, the supply will decrease and prices should start to level out. At least that's the supply/demand theory.

Before we all get excited, there's one bit of news that's not so rosie. October and November were/are supposed to be record months for loan resets. That means interest rates just might be jumping for a significant portion of borrowers. If that's the case, then we can expect to see another jump in foreclosures during the first and second quarters next year flooding the supply again and pushing prices down.

This is a very important piece of the market right now and should be watched closely. Lenders are fully staffed now to handle all these foreclosures and seem to be getting them on the market very quickly now. Be sure to keep your eye on these numbers: foreclosure (trustee deed) recordings and local supply; you can do so using the FAS Report or checking out foreclosure listings.

To close on a positive note, sale volume has been on the increase for the past 4 quarters which is helping keep the supply relatively low.

The Bakersfield Appraiser