2012 could be record year for short sales

RealtyTrac: Short sales outnumber REO sales in California, Arizona, Florida

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2012 is on track to become a record year for short sales, according to a report from foreclosure data aggregator RealtyTrac released today.

Sales of U.S. homes in the foreclosure process, typically short sales, rose 33 percent year over year, to 35,000, in January. A total of 32 states saw annual increases in short sales, and 12 states saw more short sales than REO (real estate owned) sales.

The short-sale increase comes after three years of declines following the inauguration of "a new presidential administration with a new approach to the foreclosure problem," wrote Daren Blomquist, RealtyTrac’s vice president and author of the report.

"Short sales have long held great promise as a market-based solution to the nation’s foreclosure problem, but short sales transactions over the past three years have actually declined after peaking in the first quarter of 2009," Blomquist said in a statement.

"January foreclosure sales numbers, along with first-quarter foreclosure activity, strongly indicate that downward trend is ending, and we believe 2012 could be a record year for short sales."

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Several states saw triple- or double-digit yearly jumps in short sales in January, including Georgia (up 113 percent), Michigan (90 percent), California (52 percent), Texas (48 percent), Arizona (44 percent), Nevada (36 percent), and Florida (20 percent).

Although REOs continue to outnumber short sales nationwide, there were only 2,600 more REO sales than short sales in January. Nearly a quarter of states had more short sales than REO sales, including Utah, California, Arizona, Florida, Indiana, Colorado, New York and New Jersey, according to the report.

Six out of the 10 states with the highest share of short sales in January were in the West.

State # of pre-foreclosure (short) sales Pct. chg. from Jan 2011 % of all sales Avg. sales price Avg. discount (%) # of REO sales
U.S. Total 35,816 33.0 13.8 $174,120 21.3 38,443
             
California 11,397 51.9 29.2 $248,677 29.9 8,821
Nevada 1,777 36.3 27.2 $117,740 15.8 2,270
Arizona 3,217 44.5 23.7 $119,216 25.7 2,776
Georgia 2,000 112.5 20.6 $114,947 29.3 2,596
Colorado 1,333 -6.9 20.1 $182,593 24.7 911
Idaho 196 -8.4 15.6 $120,428 22.2 109
Michigan 1,493 89.7 15.2 $104,199 2.9 2,182
Florida 5,014 19.8 13.9 $114,943 24.2 3,959
Rhode Island 107 101.9 13.8 $143,460 28.8 112
Utah 364 70.1 13.3 $180,573 N/A 299

Source: RealtyTrac

Of the 50 largest U.S. metro areas, nine out of the 10 metros with the highest share of short sales in January were in the West, six of them in California.

Metro # of pre-foreclosure (short) sales Pct. chg. from Jan 2011 % of all sales Avg. sales price
Riverside-San Bernardino-Ontario, Calif. 2,152 44.1 32.5 $175,782
Sacramento–Arden-Arcade–Roseville, Calif. 1,065 82.4 29.9 $184,824
San Diego-Carlsbad-San Marcos, Calif. 886 39.5 29.8 $323,927
Los Angeles-Long Beach-Santa Ana, Calif. 2,858 22.3 29.2 $331,369
Las Vegas-Paradise, Nev. 1,501 38.1 28.2 $114,783
San Jose-Sunnyvale-Santa Clara, Calif. 434 61.3 27.3 $381,384
San Francisco-Oakland-Fremont, Calif. 1,146 87.0 27.3 $316,814
Phoenix-Mesa-Scottsdale, Ariz. 2,699 38.3 26.1 $119,261
Atlanta-Sandy Springs-Marietta, Ga. 1,799 120.5 22.4 $116,539
Denver-Aurora, Colo. 759 -11.1 22 $181,726

Source: RealtyTrac

Even as short sales increase, the prices buyers pay for them have decreased. In fourth-quarter 2011, a pre-foreclosure property sold for an average $184,221, down 11.3 percent from fourth-quarter 2010. In January, such a property sold for $174,120, down 10 percent year over year.

Short sales are also selling for bigger discounts when compared to the average sales prices of nondistressed homes. Short-sale buyers received an average 21 percent discount in January, up from an average discount of 17 percent the year before. RealtyTrac does not take into account property condition or size when calculating discounts for distressed properties.

Short sales in Massachusetts, Missouri and California saw the biggest discounts in January.

Short-sale timelines appear to be getting shorter. After peaking at 318 days in third-quarter 2011, the average number of days it took for a property to go from the start of the foreclosure process to its sale as a pre-foreclosure was 306 days in the first quarter, slightly down from 308 days in the fourth quarter.

Although foreclosure starts — either default notices or scheduled foreclosure auctions, depending on the state — were down 11 percent from the previous year in March, last month also saw the third straight monthly rise in foreclosure starts.

There are nearly 3.5 million delinquent borrowers nationwide; 41 percent of those borrowers are seriously delinquent and therefore at high risk for entering the foreclosure process and becoming short sales, RealtyTrac said.

Another, bigger potential pool of short-sellers are borrowers with underwater mortgages. More than 12.5 million borrowers owe at least 25 percent more on their mortgage than their home is worth.

"Even if these homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale," the report said.

Among lenders and loan servicers, Bank of America had the highest short-sale volume in January, followed by Chase and Wells Fargo.

PNC Financial saw the biggest annual jump in short sales, followed by the Federal Housing Administration, Fannie Mae and Freddie Mac combined.

 

Those three government-backed entities also had the lowest average short-sale prices in January, the biggest declines in average sales price for short sales, the lowest number of average days to sale, and the biggest decrease in time to sell.


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