Short Sales Take Growing Share of Distressed Sales
Foreclosed and pre-foreclosed homes maintained their position as the source of over a fifth of U.S. home sales in the second quarter of 2012. Twenty-three percent of all residential sales during the period were of bank-owned properties (REO) or homes in some stage of foreclosure, up from 22 percent in the first quarter of the year and 19 percent in the second quarter of 2011. RealtyTrac, an Irvine, California firm that tracks foreclosure activity, reported that an additional 14 percent of all sales were short sales, where the bank agreed to a payoff lower than the actual outstanding mortgage balance, that were unrelated to foreclosures.
RealtyTrac's second quarter U.S. Foreclosure Sales Report noted that the market share of distressed sales increased even though the actual number of those sales fell 12 percent from the previous quarter and 22 percent from a year earlier. A total of 224,429 foreclosure-related transactions were completed during the quarter.
The number of pre-foreclosure sales (short sales) continued to rise relative to sales of REO. Foreclosure related short sales accounted for 107,298 of the distressed sales during the quarter, only 9,733 fewer than bank-owned property sales, the smallest difference between the two since 2007. Eleven percent of all sales during the second quarter were pre-foreclosure sales, up from 8 percent in Q2 2011, and these outnumbered REO sales in 13 states and the District of Columbia. The 117,131 sales of REO represented 12 percent of all sales in the quarter, unchanged from Q1 and one point higher than Q2 2011.
For the first time since the second quarter of 2010 there was an annual increase in the sales price of distressed homes. The average price of $170,040 reflected a 6 percent increase from the first quarter and 7 percent from the previous year. It was also the largest bump in average price since late 2006. The average price represented a discount of 32 percent from that of a non-foreclosure home, up from a 30 percent discount in both the previous quarter and a year earlier.
Pre-foreclosure sales closed at an average price of $185,062, a five percent increase from the previous quarter which had represented a low point in RealtyTrac reporting history, but the price was still 1 percent lower than a year earlier. These sales were at an average discount of 26 percent from a market rate sale, up from a 24 percent discount in Q1 and an 18 percent discount in Q2 2011.
Bank-owned real estate sold for an average price of $155,892, 6 percent higher than in the first quarter and 10 percent above the price in the same quarter of 2011. This represented an average discount of 37 percent unchanged from the first quarter and slightly below the 38 percent discount a year earlier. The highest discounts for distressed property sales were recorded in Texas (41.64 percent) and Massachusetts (40.12 percent).
"The second quarter sales numbers provide solid statistical evidence of what we've been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets," said Daren Blomquist, RealtyTrac Vice President.
"Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it's no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis.
"Three straight months of increasing foreclosure starts through July may ease the inventory shortage somewhat in the coming months when many of these foreclosure starts translate into listed short sales or bank-owned homes," Blomquist added. "The increase in short sales of properties that have not even started the foreclosure process indicates that lenders are moving further upstream to deal with their distressed inventory, thereby avoiding the increasingly complex and lengthy foreclosure process altogether."
Short sales took an average of 319 days to sell after starting the foreclosure process, up from 306 days in the previous quarter and 245 days in the second quarter of 2011. It took an average of 195 days for REOs to sell after completing the foreclosure process, up from 178 days in both the first quarter and a year earlier.
Pre-foreclosure sales increased on a year-over-year basis in 16 states, including Michigan (42 percent increase), Illinois (35 percent increase), Connecticut (27 percent increase) and Massachusetts (27 percent increase).
Foreclosure sales accounted for 43 percent of all residential sales in both Georgia and Nevada in the second quarter, the two highest percentages among the states despite decreasing foreclosure-related sales activity in both states.