The Breakdown

Explaining Southern California's economy

Distressed home sales are declining across Southern California

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The California Association of Realtors released data on August pending and distressed home sales today — data that shows that the housing market in the Southland and elsewhere in the state is improving to the degree that a lack of housing inventory is becoming a problem. 

This could ultimately be a good problem to have, if its spurs builders, such as L.A.-based KB Home, to start constructing new houses. KB beat earnings expectations last week and now seems to be pretty bullish on a housing recovery.

It's also good for sellers, as a shortage of supply is pushing prices up. It's worth noting that market is now clearing the overhang of distressed properties, a process that we've been waiting for particularly in hard-hit California. As you can see from the charts above, distressed sales — short sales and foreclosed properties, or "REOs" ("real estate owned") — have been falling year-over-year and month-over-month is Los Angeles, Riverside, and San Bernardino counties. 

The inventory of unsold homes, both distressed and non-distressed, has also fallen to its lowest level since August of last year. The CAR blames a decline in pending sales from last August on the shortage of inventory. 

Of course, as RealtyTrac's Daren Blomquist pointed out in July, banks could be parsing out their foreclosures in a careful manner, to avoid flooding the market. So in the next few months, we could see distressed sales pick up, as banks respond to growing demand and limited supply.

There are now signs that a more robust housing recovery is ready to begin in SoCal. It will be interesting to look at tomorrow's Case-Shiller index to see if prices in Los Angeles are continuing the upward trend that they've established since the beginning of the year. 

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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