The value of every property in San Clemente is greatly affected by local foreclosure activity.

When a bank holds a trustee sale, repossesses the house next door and puts up a “Bank Owned” for-sale sign in the front yard, that lowers your property value.

Because, unlike emotional people, banks will keep lowering their price until they sell the property.

But only about 80 percent of foreclosed San Clemente homes make it into the banks’ “real-estate owned” (REO) departments, and then into the Realtors’ Multiple Listing Service.

The other 20 percent are bought by the highest bidders on the proverbial  courthouse steps, or packaged and sold to large investors.

(Some people think there is a vast “shadow inventory” of repossessed homes that banks are intentionally withholding from the market to keep everything from collapsing. But there is no real local evidence of that.)

It’s not just trustee sales that affect local property values.

Just the filing of a notice to hold a trustee sale of the house next door will hurt your property value, because such filings are public information and now readily available to anyone with Internet access.

Generally, there is a 21-day delay between the notice of sale and the actual sale. A couple of years ago, about one-third of such local filings resulted in actual trustee sales. The other two-thirds managed to avoid foreclosure by various means, mainly with cash.

But today, nearly half of local notices result in actual trustee sales.

It’s not that we have more trustee sales today—San Clemente has been holding steady for more than two years at about 18 per month—it’s that we have substantially fewer notices of trustee sale these days.

Homeowners in trouble have learned the many benefits of the short sale—selling their home for less than owed with lender approval.

These days, a short sale in progress will usually stop not only a trustee sale but also the filing of a notice of trustee sale.  Banks like short sales too.

But wait, there’s more …

About three months before the house next door receives a notice of trustee sale, it gets a notice of default.

A couple of years ago, notices of default filed against San Clemente homes topped out at almost 100 per month. Back then, the vast majority of homeowners in trouble cured their arrearages and avoided foreclosure.

But these days, only about 40 notices of default are filed against San Clemente homes each month. Local foreclosure activity has become very stable. Over the past year, we have seen a very steady 40 notices of default filed each month in San Clemente, with an almost equal number of notices of trustee sale, and about 18 to 20 actual trustee sales.

You might think this recent calming of foreclosure activity would have a beneficial effect on local market prices.

It has.

Citywide prices in general have been relatively flat for the last year or so, after falling more than 1 percent each month for the previous two years.

But the house next door will always remain the most important house in your neighborhood.

For more of the latest market news and statistics on San Clemente real estate, visit my blog at SanClementeRealEstateBlog.com or MCotter.com.