One-fourth of the market in the final four months of 2011 was dominated by sales of properties in some stage of foreclosure. This is surprising to those in the industry only because it wasn’t higher.
“Sales of foreclosures in the fourth quarter continued to be slowed by questions surrounding proper foreclosure paperwork and procedures,” said Brandon Moore, chief executive officer of RealtyTrac, in the company’s Q4 and year-end 2011 Foreclosure Sales Report.
A pick up in foreclosure activity has been predicted for a while now, but a new revelation in this report, as Moore points out, is pre-foreclosure transactions — most notably short sales — started to rival the dominance of real-estate owned (REO) sales in 2012. They accounted for 10 percent of sales in the fourth quarter and nine percent for the full year. RealtyTrac expects to see this trend continue as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months.
“We continued to see a shift toward short sales and away from REO sales in the fourth quarter,” he said. “Nationally, pre-foreclosure sales increased 15 percent from a year ago while REO sales decreased 12 percent. Pre-foreclosure sales outnumbered REO sales in several bellwether markets, including Los Angeles, Miami and Phoenix, where REO sales had outnumbered pre-foreclosure sales a year ago. That trend will likely show up in more local markets in 2012 as lenders recognize short sales as a better option for many of their non-performing loans.”
Pre-foreclosure sales increased more than 20 percent on a year-over-year basis in several states, including Michigan (103 percent), Georgia (59 percent), Arizona (48 percent), Washington (36 percent), Nevada (29 percent), Oregon (27 percent), Illinois (26 percent), Ohio (25 percent), California (23 percent) and Texas (22 percent).
Pre-foreclosures, which are often sold via short sale, sold for an average of $184,221 in the fourth quarter, down 3 percent from the previous quarter and down 11 percent from the fourth quarter of 2010. The average sales price of a pre-foreclosure home in the fourth quarter was 21 percent below the average sales price of a non-foreclosure home, similar to the discount of 22 percent on pre-foreclosure purchases for the entire year.
Pre-foreclosure homes that sold in the fourth quarter took an average of 308 days to sell after starting the foreclosure process, down from an average of 318 days in the third quarter but still up from an average of 237 days in the fourth quarter of 2010.
And as short sales rose, REO started to decline. Third parties purchased a total of 115,777 REO homes in the fourth quarter, down 10 percent from the previous quarter and down 12 percent from the fourth quarter of 2010. REO sales accounted for 13 percent of all sales during the fourth quarter and 14 percent of all sales for all of 2011.
Despite the nationwide decrease, REO sales increased 20 percent or more on a year-over-year basis in several states, including Minnesota (65 percent), Wisconsin (23 percent), Washington (21 percent) and Illinois (20 percent).
Foreclosure sales accounted for 24 percent of all U.S. residential sales during the fourth quarter — up from 20 percent of all sales in the previous quarter, but down from 26 percent of all sales in the fourth quarter of 2010. Third parties purchased a total of 204,080 residential properties in some stage of pre-foreclosure or REO during the fourth quarter, down 8 percent from a revised third quarter total and down 2 percent from the fourth quarter of 2010. That brought total foreclosure-related sales in 2011 to 907,138, down 2 percent from 2010 and accounting for 23 percent of all sales during the year. The average sales price dropped 5 percent year over year during Q4, and was 29 percent below the average price of a non-foreclosure sale.