Just as they had a year earlier,
foreclosure and pre-foreclosure sales made up nearly one-fifth of the
residential home sales in the third quarter of 2012. According to RealtyTrac's Q3 U.S.
Foreclosure and Short Sales ReportTM released on Thursday, 19 percent of
home sales nationally were either bank inventory (REO) or properties pre-foreclosure. These are usually short sales in which the bank agrees to accept less than the
full mortgage balance to release its lien.
This share is identical to that in the third quarter of 2011 and only
one percentage point lower than in the second quarter of 2012.
There were a total of 193,059
U.S. properties sold through short sales or out of bank-owned inventories (REO),
up 21 percent from sales in the second quarter and three percent lower than one
year earlier. Unlike in earlier quarters short
sales outnumbered REO sales by 98,125 to 94,934. Pre-foreclosure sales were 22 percent higher
than in both the previous quarter and in the third quarter of 2011. Sales of REO increased 19 percent from the
previous quarter but were still down 20 percent from the third quarter of 2011.
RealtyTrac reports that an
additional 22 percent of residential sales were short sales of properties for
which the foreclosure process had not yet begun. This brought the market share of distressed
properties to an estimated 41 percent, an increase of 15 percent from the
second quarter and 17 percent from one year earlier.
Distressed homes sold at an average discount of 32 percent from
the price of a market sale. The discount
had been 29 percent in the second quarter and 31 percent in the third quarter
of 2011. The discount on short sales was
27 percent compared to 25 percent the previous quarter and 19 percent a year
earlier while the discount on REO was 38 percent, 5 percentage points higher
than the second quarter but lower than the 39 percent discount one year earlier.
The average sales price of a short sales was $191,025. Banks forgave an average of $94,896 on pre-foreclosure
short sales and $82,312 per short sale of homes that were not in foreclosure. REOs sold for an average price of $161,954,
down 7 percent from the previous quarter but up 7 percent from the third
quarter of 2011.
"The shift toward earlier disposition of distressed
properties continued in the third quarter as both lenders and at-risk
homeowners are realizing that short sales are often a better alternative than
foreclosure," said Daren Blomquist, vice president of RealtyTrac. "However, the
scheduled expiration of the Mortgage Forgiveness Debt Relief Act at the end of
this year could stifle this trend toward short sales. If that law expires as
scheduled, homeowners who agree to a short sale could see their income tax jump
significantly because the portion of the unpaid loan balance not covered by the
short sale proceeds will be considered taxable income in many cases.
"The prospect of being taxed on potentially tens or hundreds
of thousands of dollars in additional income may motivate more distressed
homeowners to forgo a short sale and allow the home to be foreclosed,"
continued Blomquist. "Additionally, if the mortgage interest deduction is
eliminated due to the fiscal cliff quagmire, it would give many underwater and
otherwise distressed homeowners one less reason to hang on to their homes."
Short sales took an average of 359 days to sell after
entering foreclosure, up from 319 days in the second quarter and REOs were sold
on average 186 days after being foreclosed, up from 195 days in the previous
Georgia had the highest percentage of distressed sales, a 38
percent market share. This was down from
41 percent the previous quarter. Pre-foreclosure
sales were up 40 percent and REO sales 4 percent. Non-foreclosure short sales increased 32
percent on an annual basis and accounted for an estimated 18 percent of all
residential sales in the third quarter.
Foreclosure related sales accounted for 36 percent of
residential sales in California and 34 percent in Arizona despite annual
declines of 12 percent and 28 percent respectively. In both cases REO sales declined by large
amounts (37 percent in California and 49 percent in Arizona) while short sales of
both pre-foreclosure and non-foreclosure properties were up significantly.