Foreclosed property in January was reported as selling at a 20 percent discount, while short sale properties sold at a 12 percent average discount according to the January REALTORS® Confidence Index.
- Approximately 24 percent of sales were distressed (foreclosures, short sales), compared to approximately 40 percent in March 2011.
- Property condition has a major impact on sales, with below average foreclosures reported as selling at a 24 percent discount to market, compared to properties in above average condition going for 13 percent below market.
Based on information from the November 2012 REALTORS® Confidence Index Survey, foreclosed property sold on average at a 20 percent discount, while short sale properties sold at a 16 percent average discount.
The discount to market experienced by distressed property is affected by the property’s physical condition. Well maintained properties tend to sell at a lower discount than is the case for properties in poor condition. The unweighted average price discounts to market are presented for the current survey month as well as the 12 month period from December 2011 through November 2012. REALTOR® respondents reported price discounts for distressed houses with above average condition at about 13 to 15 percent, and price discounts of 34 to 38 percent for the properties in the poorest condition.
- The strong price growth this spring has had an important impact on the housing market. Rising prices lifted many homeowners out of negative equity, improving confidence, enabling them to sell without a loss or to refinance at record low rates, and reducing the risk that they might roll into foreclosure.
- In addition, stronger prices make short sales more attractive to banks and alleviate the weight of distressed sales on the sale prices of neighboring homes. According to Corelogic, the number of underwater homeowners nationally eased by roughly 700,000 to 11.4 million in the 1st quarter of 2012 or roughly 23.7% of all mortgaged homeowners. An additional 2.3 million were in near-negative equity or had less than 5% equity, also a decline from the 4th quarter.
- Not surprisingly, all of the top five markets were ground-zero areas for the sub-prime crisis or had protracted economic recessions, while the bottom five missed both the boom and bust of the recent housing market cycle leaving them in sound equity territory.
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The number of short sales grew steadily through the end of 2011 and is expected to continue to grow in 2012. NAR Research estimates that the number of short sales in the United States will increase by 9.2% in 2012. This trend will continue a shift towards alternative methods of transitioning underwater owners who can no longer afford their mortgages out of homeownership without excess cost to banks and negative ramifications on homeowners of foreclosure.
According to a report from the Office of the Comptroller of the Currency (OCC) on Wednesday, March 28th, short sales rose by more than 10% from the 3rd quarter of 2011 to the 4th quarter reaching a record of 63,257. The potential for more distressed properties, longer time in the costly foreclosure process, and heightened oversight has resulted in more interest on the part of banks, investors, and the GSEs in this alternative to foreclosure. The trend toward short sales is important as academic research suggests that a short sale has no impact on the sale prices of non-distressed homes in the same neighborhood, while REO sales can have a significant negative impact. The OCC’s figures only measure 1st lien loans though, so they may understate the true number of short sales by not incorporating sales where the selling price did not cover the 2nd lien or piggy-back loan.