Foreclosures Were 26% of Home Sales in Q1 as Short Sales Rose
byMay 31st 2012 10:40AM
By ALEX VEIGALOS ANGELES -- Homes in some stage of the foreclosure process saw their share of overall U.S. home sales grow in the first quarter even as sales of bank-owned homes fell.
The increase was driven by a spike in short sales, or homes that sell for less than what the owner owed on their mortgage, foreclosure listing firm RealtyTrac Inc. said Thursday.
Short sales make up the vast majority of homes sold while still in the foreclosure process. Those that aren't sold or auctioned off typically end up being repossessed by banks, what most people commonly think of as foreclosures.
In the first quarter, short sales grew 25% from a year earlier, hitting a three-year high. In contrast, sales of bank-owned properties declined 15% versus the first three months of last year, the firm said.
The trend indicates a greater likelihood that home prices will continue to soften, as foreclosures and short sales typically sell at sharp discounts to other homes.
It also suggests a shift in the way lenders handle mortgages that have gone unpaid.
Lenders may be favoring short sales versus waiting for troubled loans to go through the foreclosure process to take back the homes securing the loan, said Daren Blomquist, a vice president at RealtyTrac.
"A short sale is a safer alternative to avoid any potential problems that they face because of the way they're processing foreclosures," Blomquist said.
Last year, mortgage lenders grappled with allegations that they had been processing foreclosures without verifying documents. The pace of foreclosures slowed sharply as the nation's biggest mortgage lenders worked to hammer out a settlement with state and federal officials.
They reached a $25 billion settlement in February, clearing the way for banks to take action on unpaid mortgages.
All told, 233,299 bank-owned homes or those in some stage of foreclosure sold in the first quarter, making up 26% of all U.S. home sales in the period, the firm said.
That's the highest percentage of overall sales since the figure hit 28% in the third quarter of 2010, before the foreclosure abuse claims against mortgage lenders surfaced.
Foreclosure sales made up 22% of all sales in the last three months of 2011 and one-fourth in the first quarter a year ago.
As of end of April, there were 637,668 bank-owned homes yet to be sold, representing a 17-month supply, Blomquist said. Another 722,467 were in some stage of the foreclosure process.
Sales of all previously occupied homes jumped in January to the highest pace in nearly two years, but declined slightly the next two months. Sales rose 3.4% in April from March to a seasonally adjusted annual rate of 4.62 million, according to the National Association of Realtors. That nearly matched January's pace of 4.63 million, but was below the nearly 6 million that most economists equate with healthy markets.
While rising, the share of foreclosure sales remains well below its first-quarter 2009 peak of 45% of all sales. They comprised less than 1% of all sales in 2005, at the height of the housing boom.
Combined, bank-owned homes and those still in the foreclosure process sold for an average of $161,214 in the first quarter. That's down 1% from the fourth quarter of last year and down 2% from the first quarter of 2011.
Compared to non-foreclosure homes, the average price of a foreclosure sale was 27% below the average sales price of a home not in foreclosure or owned by a bank during the quarter. That discount is unchanged from the fourth quarter last year, but is down from a discount of 29% in the first quarter of 2011.