The real estate market won't normalize until virtually all of the negative equity mortgages are resolved in one way or another; foreclosure, short sale, mortgage modification, or more gradually by paying down balances, possible home price appreciation, inflation, etc. I think the negative equity and delinquency rate data available from financial firms like CoreLogic is more interesting and informative than foreclosure filings.
Today, the Stockton Record reports CoreLogic estimate of Negative Equity for the Stockton MSA in 2011Q3 is 51.1% down from 53.3% in 2011Q2. Going back into our archives, I see that this has come down 14 percentage points from 2010Q1 when it was reported at 65%. That's quite a lot of progress.
For the 50 largest metro areas, you can download more detailed data directly from CoreLogic and there are some interesting comparisons in the region. Stockton looks similar to Las Vegas, negative equity is dropping slower in Sacramento, the East Bay and Phoenix.
Sacramento was 44.8% negative equity in 2010Q1, and dropped to 40.1% in 2011 Q3.
East Bay dropped from 34% to 29% over the same 6 quarters.
Phoenix dropped 57.5% to 51.9%, Riverside decreased from 53.5% to 43.7%.
Las Vegas dropped from an incredible 74.7% in 2010Q1 to 61% in 2011Q3, similar to Stockton but higher overall.
Here is the depressing part. At the current pace of decline in negative equity mortages, it would take 10 years to eliminate them in Sacramento and Phoenix, and about 5 years for places like Stockton and Las Vegas that seem to be reducing negative equity mortgages at a faster rate. It shouldn't take that long to have a more normal market since not all mortgages are severely underwater and at high-risk for default in the short-term and will resolve over time.
Progress is good, but the road to recovery remains very long.