The worst summer for home sales in decades also put a chill on foreclosure sales, even as the average discounts on the distressed properties got bigger compared with other types of homes.
Foreclosure sales plunged 25% in the July-September quarter versus the April-June period and tumbled 31% from the third quarter last year, foreclosure listing firm RealtyTrac said Thursday.
Sales of nonforeclosed properties fell 29% sequentially and nearly 31% from the third quarter last year, the firm said.
The decline in sales of bank-owned properties and other homes in some stage of foreclosure is in line with an overall housing market slowdown that took hold after federal homebuyer tax credits expired in April.
The fallout over foreclosure processing errors that prompted some lenders to temporarily halt sales of bank-owned homes wasn't a significant factor in the sharp third-quarter drop in foreclosure sales, said Daren Blomquist, a RealtyTrac spokesman.
"We could expect probably in the fourth quarter to see that percentage of foreclosure sales dip because buyers are a bit skittish about purchasing foreclosure properties, given the questions surrounding the foreclosure process," Blomquist said.
Already, the firm has seen a decline in foreclosure activity in November, which suggests a holdover effect from the foreclosure documents mess. That could mean fewer home sales in the final months of the year - already a traditionally slow period.
In all, 188,748 U.S. homes in some stage of foreclosure were sold in the July-September period, accounting for a quarter of all U.S. residential property sales, RealtyTrac said.
The firm used data from sales deeds filed with county recorder offices. The transactions include sales of newly built homes and previously occupied properties. Foreclosure sales include homes sold by banks and short sales - when the homeowner and the bank agree to sell the property for less than what is owned on the mortgage.
As a share of overall home sales, foreclosure sales rose slightly from the second quarter. They peaked at 37% of all sales in the first quarter of 2009, but have ranged between 25% and 30% this year, Blomquist said.
One key driver is the quantity of foreclosed properties on the market.
In 2005, as the housing boom roared, foreclosure sales accounted for just 1% of all sales.
This year, even before the foreclosure documents snag erupted, the foreclosure process began to slow as lenders stepped up attempts to modify loans. Lenders also appear to be managing their stock of repossessed homes, not wanting to flood the market with too many properties.
That's led to a sharp drop in the inventory of available bank-owned homes in some markets, such as Las Vegas and hard-hit foreclosure markets in the neighboring Southern California counties of San Bernardino and Riverside.
Cynthia Gomez, broker-owner of Century 21 Town & Country in Ontario, Calif., said her agents are seeing fewer listings from lenders. Foreclosure sales make up 80% of Gomez's business.
"The inventory became a little more limited because banks were either holding back or not giving as many assignments as we were getting in the past," she said.
Many of those who did snap up a foreclosed home in the third quarter likely got it at a hefty discount.
Big Discount on Foreclosed Properties
The average sales price of foreclosure properties in the quarter was $169,523, or 32% below the average sales price of nondistressed properties, RealtyTrac said.
That's the highest discount relative to nonforeclosed properties in five years, the firm said.
That average sales price gap has been trending higher over the past four quarters. Historically, it has ranged between 15% and 30%, according to RealtyTrac's records, which go back to the first quarter of 2005.
Weaker demand following the end of the homebuyer tax credits has given buyers more leverage to negotiate better deals with banks and other distressed sellers.
Buyers also are competing with fewer buyers, though foreclosed properties in some markets, such as Las Vegas, still get multiple offers that can end up bumping up the sales price.
Nevada, Arizona and California had the highest percentage of foreclosure sales in the quarter.
Nevada led the nation with foreclosure sales accounting for nearly 54% of all home sales, RealtyTrac said. That was down from nearly 56% in the second quarter and 62% a year earlier.
Several other states had foreclosure sales that accounted for at least one-quarter of all home sales: Florida, Massachusetts, Michigan, Georgia, Oregon, Idaho and Illinois.