Timing of Distressed Home Inventory Sales Plays Important Role in Housing Recovery

Asrnif it were needed, RealtyTrac Wednesday offered more proof that the housingrnmarket will not improve until Americans can carry the mortgages they alreadyrnhave…</p

According to data released by RealtyTrac, 31 percent ofrnall residential properties that sold in the first quarter of 2010 were in somernstage of foreclosure.  Even more telling,rnthose homes sold at an average sales price nearly 27 percent below the averagernprice of properties that were not in foreclosure. </p

Thernreport said that 232,959 properties that were in default, scheduled forrnauction, or in a bank's owned real estate (REO) portfolio were sold during thernfirst quarter. This was a decrease of 14 percent from the numbers of such propertiesrnthat were sold to third parties in the fourth quarter of 2009.  Bank-involved property sales peaked in thernfirst quarter of 2009 when they represented 37 percent of all sales.  Current figures are down 33 percent from thatrnnumber. </p

Therernwere 144,503 bank-owned properties sold during the first quarter, a drop of 13rnpercent from the previous quarter and 27 percent from the same quarter inrn2009.  REO sales had a 19 percent marketrnshare in the first quarter compared to 16 percent in the fourth quarter and 21rnpercent one year earlier.  Pre-foreclosurernsales totaled 88,456 in the first quarter, 15 percent lower than fourth quarterrnsales and 41 percent below the first quarter in 2009.  During the recent quarter, pre-foreclosurernsales accounted for 12 percent of the market, up 2 percent from the previousrnquarter and 16 percent year-over-year.</p

“First time homebuyers andrninvestors continue to buy foreclosure properties in large numbers, and atrnsubstantial discounts,” said James J. Saccacio, chief executive officer ofrnRealtyTrac. “As lenders have begun repossessing homes at record levels over thernfirst half of 2010, it will be interesting to watch how they will manage therninventory levels of distressed properties on the market in order to preventrnmore dramatic price deterioration.” </p

In February MND wrote: </p

“To reduce the cost of maintaining the condition of foreclosed properties, banks have delayed the liquidation process and allowed delinquent borrowers to remain in their homes. In addition to that, by delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs .  I expect banks to continue to utilize this strategy, but it won't last forever.  Once the housing market starts to pick up recovery momentum, banks will begin to slowly liquidate their inventory of foreclosed properties. Hopefully they will do so in a manner that does not greatly disrupt local supply/demand.”  READ MORE ABOUT THE TIMING OF REO SALES</p

Whilernthe proportion of foreclosure sales to market sales is decreasing, therndifferential in price continues to increase. <bThe average sales price of a foreclosure-related property dropped 23rnpercent from 2006 to 2009 and the average discount from market price in thernsame period increased from 21 percent to the current 27 percent level.  </p

Discounts are largest on sales of propertiesrnin REO inventories although, as the number of short sales has increased, therndiscounts on those sales have also trended higher. The discount on REO sales duringrnthe quarter averaged 34 percent compared to 32 percent in both the fourth quarterrnand the first quarter of 2009. Pre-foreclosures, including short sales, sold for an average discountrnof almost 15 percent, up from nearly 14 percent in the previous quarter butrndown from 16 percent in the first quarter of 2009.</p

More than 1.2 millionrnproperties foreclosed or in foreclosure sold to third parties in all of 2009,rnan increase of 25 percent from the previous year.  Sales in 2009 were up 327 percent from 2007rnand 1,100 percent from 2006.  In 2007rnforeclosure sales accounted for only 6 percent of the residential real estaternmarket. The discount on distressed properties sales averaged 25 percent duringrnall of 2009 compared to 22 percent in 2008 and 26 percent in 2007.  </p

Asrncould be expected, those states which have the most foreclosures also have thernmost foreclosure-related home sales and market share. Nevada, which has led thernnation in percentage of troubled loans for over two years, had the highestrnpercentage of foreclosure sales, 64 percent. rnThis was down from 65 percent in the previous quarter and 75 percent arnyear earlier. California was second with 51 percent of all sales foreclosure related.  This was an up-tick from 50 percent a quarterrnearlier but a large improvement year-over-year; in the first quarter of 2009rnforeclosure sales accounted for 70 percent of California's market. In Arizonarnforeclosure sales represented a 50 percent share of sales and Massachusetts,rnRhode Island, Florida, Michigan, Georgia, Illinois, Idaho, and Oregon all couldrnattribute over one-third of their sales to foreclosures.</p

Under the Obama Administration's “HFA Hardest Hit Fund”, Arizona, California, Florida, Michigan, and Nevada will receive funding for localrn initiatives to assist struggling homeowners. READ MORE</p

The biggest discounts,rnhowever, were not in those states.  Ohio,rnKentucky, and Illinois all saw foreclosure related properties selling at anrnaverage 39 percent discount while Tennessee, Pennsylvania, DC, and New Jerseyrnalong with California had discounts of 35 percent or higher.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.