Wednesday, October 6, 2010

Distressed Properties Account for 24% of Home Sales in Q2 2010

Nearly a quarter of a million homes that were in some stage of foreclosure were sold during the second quarter of 2010, an increase of 5 percent since Quarter One.  This, however, was 20 percent fewer sales than were recorded in that category in the second quarter of 2009.
According to the 2nd Quarter RealtyTrac Sales Report issued this morning, sales of homes in the process of pre-foreclosure or out of lenders real estate portfolios (REO) accounted for 24 percent of all sales in the country.

Home sales overall increased from the previous quarter, but while actual numbers of properties involved in foreclosure sales increased from 232,959 in the first quarter to 248,534the market share of foreclosure sales was down from 31 percent. Extrapolating from RealtyTrac's foreclosure sales numbers and percentages, an estimated 1.4 million homes were marketed in Q2 compared to 752,000 in the previous period.

James J. Saccacio, chief executive officers of the Irvine California based firm said, "While foreclosure sales increased in the second quarter, non-foreclosure sales increased even more, spurred on by the homebuyer tax credit that expired during the quarter.  That had the net effect of lowering foreclosure sales as a percentage of total sales during the quarter, but that may be a temporary dip as the removal of the tax credit could drive more buyers back to discounted short sales and REOs."

Lenders appear to be moving substantial numbers of properties before they fall into bank ownership.  151,290 homes were sold from REO  inventory while 97,244 of sales were of properties in default or scheduled for auction.  While the latter were not necessarily "short sales," that is transactions where the lender agrees to take less than the balance owned in order to release its lien, many were.   While REO sales were up 3 percent from Q1, they were down 28 percent from one year earlier.  Pre-foreclosure sales increased 8 percent from the previous quarter but were down 3 percent from a year earlier.  REO sales represented 15 percent of all residential sales in the country compared to 19 percent in Q1 and 20 percent a year earlier while pre-foreclosure sales accounted for 9 percent, 3 percentage points lower than the previous quarter but at about the same level as a year earlier.
A buyer of REO continues to get a substantial discount from market prices.  REO sold at an average discount of just over 34.5 percent, a number which was virtually unchanged from both the previous quarter and the figure a year earlier.  

A pre-foreclosure property, on the other hand, sold much closer to market price.  The average discount was 13 percent, down from 16 percent in Quarter One and 19 percent in the second quarter of 2009.  On average, a buyer of distressed properties averages a 26 percent discount.

As usual, Nevada, Arizona, and California posted the highest percentage of foreclosure sales.  More than half of all sales, 56 percent, in Nevada were of homes in foreclosure but the actual number of sales was down 30.1 percent from Q1.  Buyers in Nevada received an average discount of 16 percent.  In Arizona 47.4 percent of sales were foreclosure related and in California 43.2 percent.  Discounts in the two states were 24.8 percent and 39.3 percent respectively.  It is important to note that discounts in these long-term distressed states probably also reflect substantially depressed market prices.

Other states where foreclosure sales accounted for at least one-quarter of all sales were Rhode Island (37 percent), Massachusetts (35 percent), Florida (34 percent), Michigan (33 percent), Georgia (27 percent), Idaho (27 percent), and Oregon (25 percent).  However, in Rhode Island the number of sales was down 54 percent from the previous quarter and in Massachusetts the change was -54 percent.  In both states the number of sales were down over 60 percent from one year earlier

The highest discounts were recorded in Ohio (43 percent), Kentucky (40.8 percent) and California (39 percent).  Other states with average foreclosure discounts of more than 35 percent were Michigan, Tennessee, Pennsylvania, Georgia, Illinois, and Iowa, along with the District of Columbia.

by Jan Swanson

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