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

by devteam September 30th, 2010 | Share

Nearly a quarter of a millionrnhomes that were in some stage of foreclosure were sold during the secondrnquarter of 2010, an increase of 5 percent since Quarter One.  This, however, was 20 percent fewer salesrnthan were recorded in that category in the second quarter of 2009.</p

According to the 2nd Quarter RealtyTrac Sales Report issued this morning, sales of homes in the process ofrnpre-foreclosure or out of lenders real estate portfolios (REO) accounted for 24rnpercent of all sales in the country.</p

Home sales overall increased fromrnthe previous quarter, but while actual numbers of properties involved inrnforeclosure sales increased from 232,959 in the first quarter to 248,534, the market share of foreclosure sales was down from 31 percent. Extrapolating from RealtyTrac’s foreclosurernsales numbers and percentages, an estimated 1.4 million homes were marketed inrnQ2 compared to 752,000 in the previous period.</p

James J. Saccacio, chiefrnexecutive officers of the Irvine California based firm said, “While foreclosurernsales increased in the second quarter, non-foreclosure sales increased evenrnmore, spurred on by the homebuyer tax credit that expired during thernquarter.  That had the net effect ofrnlowering foreclosure sales as a percentage of total sales during the quarter,rnbut that may be a temporary dip as the removal of the tax credit could drivernmore buyers back to discounted short sales and REOs.”</p

Lenders appear to be moving substantialrnnumbers of properties before they fall into bank ownership.  151,290 homes were sold from REO  inventoryrnwhile 97,244 of sales were of properties in default or scheduled forrnauction.  While the latter were notrnnecessarily “short sales,” that is transactions where the lenderrnagrees to take less than the balance owned in order to release its lien, manyrnwere.   While REO sales were up 3 percentrnfrom Q1, they were down 28 percent from one year earlier.  Pre-foreclosure sales increased 8 percentrnfrom the previous quarter but were down 3 percent from a year earlier.  REO sales represented 15 percent of allrnresidential sales in the country compared to 19 percent in Q1 and 20 percent arnyear earlier while pre-foreclosure sales accounted for 9 percent, 3 percentagernpoints lower than the previous quarter but at about the same level as a yearrnearlier.</p

A buyer of REO continues to get arnsubstantial discount from market prices.  REO sold at an average discount of just over 34.5 percent, a numberrnwhich was virtually unchanged from both the previous quarter and the figure arnyear earlier.  A pre-foreclosurernproperty, on the other hand, sold much closer to market price.  The average discount was 13 percent, downrnfrom 16 percent in Quarter One and 19 percent in the second quarter of 2009.  On average, a buyer of distressed propertiesrnaverages a 26 percent discount.</p

As usual, Nevada, Arizona, andrnCalifornia posted the highest percentage of foreclosure sales.  More than half of all sales, 56 percent, inrnNevada were of homes in foreclosure but the actual number of sales was down 30.1rnpercent from Q1.  Buyers in Nevadarnreceived an average discount of 16 percent. rnIn Arizona 47.4 percent of sales were foreclosure related and inrnCalifornia 43.2 percent.  Discounts inrnthe two states were 24.8 percent and 39.3 percent respectively.  It is important to note that discounts in thesernlong-term distressed states probably also reflect substantially depressedrnmarket prices.</p

Other states wherernforeclosure sales accounted for at least one-quarter of all sales were RhodernIsland (37 percent), Massachusetts (35 percent), Florida (34 percent), Michiganrn(33 percent), Georgia (27 percent), Idaho (27 percent), and Oregon (25rnpercent).  However, in Rhode Island thernnumber of sales was down 54 percent from the previous quarter and inrnMassachusetts the change was -54 percent. rnIn both states the number of sales were down over 60 percent from onernyear earlier</p

The highest discounts werernrecorded in Ohio (43 percent), Kentucky (40.8 percent) and California (39rnpercent).  Other states with averagernforeclosure discounts of more than 35 percent were Michigan, Tennessee,rnPennsylvania, Georgia, Illinois, and Iowa, along with the District of Columbia.</p


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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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