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Short Sales Rising in Orange County

As more O.C. residents fall into default, short sales-the sale of a distressed home for less than the balance due on the mortgage-have become a popular recourse for homeowners facing foreclosure, rising a surprising 63% this year compared to last.

Short sales typically entail a difficult process and have always been considered a last resort, but data from the Southern California Multiple Listing Service shows that short sales climbed almost uninterruptedly this year, particularly in the last two months.

The rise in short sales also explains why home sales are going up in parts of Orange County where they would normally slow down. Countywide sales usually start to taper off in August as the buying season ends, but 2009 sales have been rising up to October.

As of September 2009, 477 short sales have been completed in Southern California, rising from only 293 at the start of the year. Month-to-month increases ranged from 17% to 20%, with the latest increase at 19.4% in September.

Andrew Page, an analyst from real estate data firm DataQuick, believes that the sales spikes in September and October were actually short sales originated earlier in the summer, but took time to push through because they require a lender's approval.

By contrast, bank-owned homes (REOs) have been declining all year, with only 412 completed in September compared to its peak of 772 in March. This also marks the first month in 2009 where the number of short sales surpassed that of REOs.

Distressed home sales were also down this year, prompting hopes of a turnaround in the O.C. housing market. Distressed sales in Southern California totaled 912 homes in September, accounting for 37.2% of all sales compared to 64.8% in January.