Foreclosures Sell at 27% Discount. Distress Focused in Few States

Foreclosed properties continued to impact the home sales market during the first quarter of 2011 according to a report released Thursday by RealtyTrac. 

Sales of bank-owned homes or those in some state of foreclosure represented 28 percent of all residential sales in the first quarter of 2011, up modestly from 27 percent of all sales in the fourth quarter of 2010 and the highest percentage of distressed sales since the first quarter of 2010, when 29 percent of all sales were foreclosed properties.

While foreclosed properties were more prevalent in the first quarter as a percentage of total home sales, they declined from a sheer numbers perspective. A total of 158,434 properties were either sold out of bank inventories (REO), at auction, or while in some stage of default through a short or other sale.  This was 16 percent fewer than in the fourth quarter of 2010 and 36 percent below the number one year earlier.

The average price of distressed home sales was $168,321, 1.89 percent below the previous quarter and 1.46 percent under prices one year earlier. One statistic that speaks well to the term "distressed property" is the 27 percent price difference foreclosed inventory and non-foreclosed homes.  That figure was however unchanged from the fourth quarter of 2010 and up 1 percentage point from the first quarter of 2010.  

James J. Saccacio, chief executive officer of the Irvine California based firm said, "While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties sold to third parties" While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery. At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks' books, or in foreclosure."

Sales can occur in two-phases of the foreclosure process.

1. Pre-Foreclosure Auction or Short Sale: if the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
2. Real Estate Owned or REO properties : "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

Pre-foreclosure sales totaled 51,291, down nearly 26 percent from the previous quarter and 45 percent lower from Q1 2010. This represented nearly 9 percent of all sales, down from 10 percent in the fourth quarter and 11 percent in the first quarter of 2010. Pre-foreclosure sales, which are often short sales, sold for an average discount of 9 percent, down from an average discount of 13 percent in the fourth quarter and an average discount of 14 percent in the first quarter of 2010.

REO accounted for 107,143 of sales in the first quarter, down 11 percent from the fourth quarter and nearly 30 percent year-over-year.  REO sales accounted for almost 19 percent of all sales in the first quarter, up from 17 percent in the previous quarter and 18 percent in the first quarter of 2010.  Bank-owned real estate sold for an average discount of 35 percent, unchanged from the previous period but up from 33 percent a year earlier. 

Bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 176 days prior to the sale, while properties that sold in the earlier stages of foreclosure in the first quarter were in foreclosure an average of 228 days before selling.

Once again the three states with the highest rate of foreclosures had the highest percentage of foreclosure sales.  Such sales accounted for 53 percent of sales in Nevada and 45 percent in both California, and Arizona.  The average discounts from market sales were 18 percent in Nevada, 34 percent in California and 25 percent in Arizona.

Other states where foreclosure sales accounted for at least one-quarter of all sales were Idaho (33 percent), Florida (32 percent), Michigan (32 percent), Oregon (32 percent), Virginia (30 percent), Colorado (30 percent), Illinois (29 percent), Georgia (27 percent) and Ohio (25 percent). 

States registering the highest discounts for properties in foreclosure were Ohio (41 percent), Illinois (41 percent), and Kentucky (39 percent).  Maryland, Tennessee, Wisconsin, Delaware, Pennsylvania, and Louisiana all had discounts of over 35 percent.