Housing Update: Distressed Sales Hang Tough


Announcements that a recovery is underway are not paying attention to the huge piece of the home sales pie belonging to foreclosures and short sales.  Distressed market share is not diminishing in the middle of the spring sales season and it is the first time in two years when prices are rising in a majority of markets.

Improving prices are supposed to inspire sellers to act, but if they are, then there is a rush of distressed properties pouting into the market. 

Two separate reports released early this week, both surveys of real estate professionals taken at roughly the same time, found that the discounts either held their own or increased last month.  The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey reported that the total share of distressed properties in the housing market in April, as represented by the HousingPulse Distressed Property Index (DPI), was 47.9 percent, using a three-month moving average. This was the 26th month in a row that the DPI has been above 40 percent.   In other words, “normal” homes made up slightly more than half the homes sold in America in April.

According to the National Association of Realtors, distressed sales accounted for 28 percent of April sales (17 percent were foreclosures and 11 percent were short sales), down from 29 percent in March and 37 percent in April 2011. Foreclosures sold for an average discount of 21 percent below market value in April, while short sales were discounted 14 percent.

The average price for non-distressed properties declined 1.5 percent from March to April, while the average price for short sales dipped 1.7 percent. For damaged REO the average price fell 1.4% and for move-in ready REO the average price slipped 0.3 percent.

Falling prices and steady sales suggest that inventories of foreclosures and short sales are rising, perhaps partly as the result the backlog of foreclosures that is being slowly released in the wake of the AG agreement to settle the Robo-signing scandal.

Photo: Ryan Dickey

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.

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