But the flood of bank repos hasn't materialized. And now, a leading California foreclosure analyst says it probably won't.
"From the things I'm seeing, there's not going to be a wave any time soon," said Sean O'Toole, president of ForeclosureRadar, a Contra Costa County firm that tracks mortgage defaults and foreclosures.
Despite a growing number of loan defaults and delinquencies, O'Toole said banks are now selling more homes than they're repossessing – and political pressure on them to work with homeowners is slowing foreclosure rates. Other market watchers also see banks slowly dribbling out their supply of repossessed homes.
If the supply of homes for sale remains in balance with demand, the danger of another sharp downturn in prices is lessened, at least in the short run, O'Toole and others said Thursday.
The prospect of another wave of new foreclosures has long threatened to destabilize a capital-area market precariously balanced by massive repo sell-offs, curtailment of new-home production and buyers enticed by lower prices, low interest rates and tax credits.
Even as disaster scenarios remain easy to imagine, the number of area for-sale signs is now at an encouraging 52-month low.
Still, the downside to this relative steadiness in the near term, O'Toole acknowledged, may be that it will take longer to work through the mortgage crisis and recover.
On Thursday, La Jolla researcher MDA DataQuick offered fresh evidence of the market's tenuous balance.
Regional home sales in September ticked up slightly from August, with 3,454 new and existing homes changing hands in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Yet September marked a fourth straight month in which sales fell below the same time last year.
That's because recent sales have been unable to match last year's sharp rise as banks unloaded thousands of repos, a phenomenon that also put downward pressure on area home values. O'Toole said banks have cut their statewide repo inventory by 41 percent in the past year.
Now that the repo sales pace has slowed in Sacramento County – from 70 percent of sales in February to 53 percent in September – median sales prices have quickly stabilized.
DataQuick reported a September median price of $176,000 in Sacramento County. Median is that point where half the homes cost more and half less. That was down from a 2009 high of $180,000 in August, but still well above February's housing bust low of $160,000.
Fewer repo listings this year brought another phenomenon not seen since the boom: bidding wars. The phenomenon so frustrated state employee Lauri Lathrop that she finally bought a new house in Elk Grove in September.
"I was putting in offers $15,000 above the asking price, and I was getting outbid," she said Thursday. "I saw this new house and nobody could outbid me. It was like it was mine," she said.
Lathrop obtained a favorable interest rate and an $8,000 federal tax credit for first-time buyers – though she missed the window for a $10,000 state tax credit for buyers of new homes.
Such perks combined with affordability to prod more buyers off the fence this year. Sales of new and existing homes combined from January through September this year total 30,231, beating 29,751 during the same period in 2008 and 26,777 from January through September 2007.
As a result, the number of for-sale signs in El Dorado, Placer, Sacramento and Yolo counties has fallen to May 2005 lows, according to Sacramento researcher TrendGraphix.
The affiliate of Lyon Real Estate counted 6,129 listings in the four counties at the end of September. The numbers have fallen for 25 straight months since peaking at 16,262 in August 2007.
TrendGraphix said 13.4 percent of current listings are bank repos and 27 percent are short sales, in which owners hope lenders will accept a sales price below what they owe. That means 40 percent are so-called "distress sales."
That's scary, but real estate agents like Singley and Carey Covey of Cook Real Estate maintain there is an ample supply of buyers. And sales statistics from the Sacramento Association of Realtors show that banks are faster to approve short sales now than months ago.
As the repo share of the sales mix has continued to decline, short sales rose to almost 20 percent of sales in September in Sacramento County and the city of West Sacramento, SAR reported.
Covey, who specializes in selling bank-owned homes, said he believes the supply of repos will remain steady. But he expects no trouble selling them at such a pace.
"As of right now, we're still short on supply, and there's still a lot of demand," he said.