As if it were needed, RealtyTrac Wednesday offered more proof that the housing market will not improve until Americans can carry the mortgages they already have...
According to data released by RealtyTrac, 31 percent of all residential properties that sold in the first quarter of 2010 were in some stage of foreclosure. Even more telling, those homes sold at an average sales price nearly 27 percent below the average price of properties that were not in foreclosure.
The report said that 232,959 properties that were in default, scheduled for auction, or in a bank's owned real estate (REO) portfolio were sold during the first quarter. This was a decrease of 14 percent from the numbers of such properties that were sold to third parties in the fourth quarter of 2009. Bank-involved property sales peaked in the first quarter of 2009 when they represented 37 percent of all sales. Current figures are down 33 percent from that number.
There were 144,503 bank-owned properties sold during the first quarter, a drop of 13 percent from the previous quarter and 27 percent from the same quarter in 2009. REO sales had a 19 percent market share in the first quarter compared to 16 percent in the fourth quarter and 21 percent one year earlier. Pre-foreclosure sales totaled 88,456 in the first quarter, 15 percent lower than fourth quarter sales and 41 percent below the first quarter in 2009. During the recent quarter, pre-foreclosure sales accounted for 12 percent of the market, up 2 percent from the previous quarter and 16 percent year-over-year.
"First time homebuyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts," said James J. Saccacio, chief executive officer of RealtyTrac. "As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration."
"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
While the proportion of foreclosure sales to market sales is decreasing, the differential in price continues to increase. The average sales price of a foreclosure-related property dropped 23 percent from 2006 to 2009 and the average discount from market price in the same period increased from 21 percent to the current 27 percent level.
Discounts are largest on sales of properties in REO inventories although, as the number of short sales has increased, the discounts on those sales have also trended higher. The discount on REO sales during the quarter averaged 34 percent compared to 32 percent in both the fourth quarter and the first quarter of 2009. Pre-foreclosures, including short sales, sold for an average discount of almost 15 percent, up from nearly 14 percent in the previous quarter but down from 16 percent in the first quarter of 2009.
More than 1.2 million properties foreclosed or in foreclosure sold to third parties in all of 2009, an increase of 25 percent from the previous year. Sales in 2009 were up 327 percent from 2007 and 1,100 percent from 2006. In 2007 foreclosure sales accounted for only 6 percent of the residential real estate market. The discount on distressed properties sales averaged 25 percent during all of 2009 compared to 22 percent in 2008 and 26 percent in 2007.
As could be expected, those states which have the most foreclosures also have the most foreclosure-related home sales and market share. Nevada, which has led the nation in percentage of troubled loans for over two years, had the highest percentage of foreclosure sales, 64 percent. This was down from 65 percent in the previous quarter and 75 percent a year earlier. California was second with 51 percent of all sales foreclosure related. This was an up-tick from 50 percent a quarter earlier but a large improvement year-over-year; in the first quarter of 2009 foreclosure sales accounted for 70 percent of California's market. In Arizona foreclosure sales represented a 50 percent share of sales and Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho, and Oregon all could attribute over one-third of their sales to foreclosures.
Under the Obama Administration's "HFA Hardest Hit Fund", Arizona, California, Florida, Michigan, and Nevada will receive funding for local initiatives to assist struggling homeowners. READ MORE
The biggest discounts, however, were not in those states. Ohio, Kentucky, and Illinois all saw foreclosure related properties selling at an average 39 percent discount while Tennessee, Pennsylvania, DC, and New Jersey along with California had discounts of 35 percent or higher.