This evening I had a look at our multiple listing service, which for the Silicon Valley area is MLSListings.com, to get a sense of what’s happening with the short sale market here.

I was shocked at the low number of short sale houses, condos, and townhouses for sale in Santa Clara County.  Right now there are exactly 48 single family homes and condos/townhouses for sale (and not under contract or sale pending) in the county.  There are 362 pending and 154 which closed escrow in the last month. To get the absorption rate or months of inventory, we divide the solds in the last month by the for-sale number, so 154 divided by 48 and we get 3.12 months of inventory.  That is fast, but perhaps most shocking is just the low numbers involved at all.  Over the last year, there were 2372 closed short sales, on average a little under 200 per month.

This is a far cry from several years ago, where short sales seemed to be as contagious as the flu in winter.  What happened?

Lots.  First, we have a jobs recovery underway in the San Jose area, particularly in the high tech industries.  Second, we have low interest rates and improving faith that the market is recovering, and since about Feb 1 2012, we’ve had an increasingly deepening sellers real estate market in the South Bay.  That, in turn, has created rising prices and given back some equity to distressed, underwater home owners.  This third item is key: because home owners can see that the tide is turning, in many cases they also can see that if they hang on, eventually they will be in a position of equity again.  Not only that, but rents in many areas are rising rapidly too, making it possible in parts of the county to break even faster by renting out one’s home rather than parting with it for a loss.

Not everyone has it so good!  Today I had a tradesperson at my house doing some post-flood repair work.  He lives in Los Banos, where home values are down more than 80% from the peak.  We have not really seen this in Santa Clara, San Jose and nearby areas – seldom were prices down as much as half!  In Los Banos, it’s questionable whether home prices will ever catch up to the peak.  In Cupertino, Palo Alto, Sunnyvale, Mountain View and similar parts of Santa Clara County, though, home values are at or close to the peak already.

For underwater home owners who are out of work or underemployed, it may be impossible to hang on and wait for recovery.  For many others, though, short selling may not be ideal if equity is just around the corner.  Before deciding how to proceed if mulling over a short sale, please talk with a qualified tax professional, such as a CPA, and an attorney to understand all of the ramifications of this decision.  And talk with a good, local, experienced Realtor to get a sense of where your local market is going too.  It would be a shame to short sell a property only to have equity be a stone’s throw away.  The shrinking number of these distressed sales is a clue all by itself that waiting may be the best option, if possible.