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IRVINE, CA—Despite the rise in national foreclosure activity last month, the amount of distressed residential properties in Southern California is decreasing, according to a report from RealtyTrac. Chris Pollinger, SVP of sales for First Team Real Estate, covering the Southern California market, says, “Distressed property inventory in Southern California continues to decline as equity sellers continue to dominate the marketplace.”

Daren Blomquist, VP of RealtyTrac, tells GlobeSt.com, “Equity sellers are those who actually have equity in their homes as opposed to those with negative equity who need to sell via short sale. The more homeowners with equity in a market, the better chance those homeowners will be able to sell to avoid foreclosure even if they do get into a financial bind or their mortgage payment goes up because of a rate reset or home-equity line that becomes fully amortizing.”

Blomquist adds in the past, these types of payment shocks might lead to foreclosure, but now that more homeowners have equity, they have a much better chance of selling if needed or even refinancing to avoid foreclosure. “RealtyTrac data shows only 6% of homeowners with a mortgage in Orange County are now underwater with negative equity, while only 9% of those in San Diego County are underwater, and 10% of those in Los Angeles County are underwater. Nationwide, there are still 17% of homeowners with a mortgage that are underwater.”

As GlobeSt.com reported last week, US foreclosure filings on residential properties increased 7% from the previous month in August, but are still down 9% from a year ago, according to RealtyTrac's report. Foreclosure filings were reported on 116,913 US properties last month, which amounts to one in every 1,126 housing units with a foreclosure filing during the month.

In other markets, the distressed properties that are selling are coming to market with far less value added to them than earlier in the recovery. According to Michael Mahon, EVP/broker at HER Realtors, covering the Cincinnati, Columbus and Dayton, OH, markets, “While we have noticed a decrease in the numbers of foreclosure sales in Ohio, we have equally noticed a decrease in the condition of much of the distressed inventory. As prices have increased with low listing inventory, lenders and services have decreased the amount of investment in preparing a unit for sale. Lenders appear to be allowing for the increase in gross prices in the market to drive revenue while mitigating losses by cutting expenses in maintaining their foreclosure inventory. This approach is adding to increased building-code violations in certain areas and further creating blight conditions in some communities.”

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