IRVINE, CA-A surge in short sales is indicated countrywide this year, since pre-foreclosure sales activity has risen significantly from a year ago, according to a new report by RealtyTrac outlining expected short-sale trends in 2012. The report shows a 33% year-over-year increase in pre-foreclosure sales (typically short sales) in January 2012, with annual increases in 32 states including Georgia, Michigan, California, Texas, Arizona and Florida.
As GlobeSt.com previously reported, despite a drop in the national foreclosure rate of 2% from fourth-quarter 2011 to first-quarter 2012, first-quarter data was expected to reveal a spike in short sales, and a nationwide surge in foreclosure activity will hit between August and November, Daren Blomquist, VP of RealtyTrac and author of the new report, told GlobeSt.com earlier in April. Still, he said, the low numbers “indicate that we are now starting to see the light at the end of the tunnel in this foreclosure crisis, particularly in some of the hardest-hit states that are driving the national trends, namely California, Arizona and Nevada, along with some other non-judicial foreclosure states.”
The spike in pre-foreclosure sales “could help to lower the number of foreclosures this year by diverting distressed properties into short sales rather than the foreclosure process,” Blomquist now tells GlobeSt.com. “While short sales still represent a distressed sale where a homeowner is losing their home under duress, they are a more efficient way for the market to absorb these distressed properties. The properties are sold sooner than bank-owned foreclosures, for higher average prices, and typically without having a vacant property sit in disrepair for several months.”
Blomquist adds that in the short term, more short sales will continue to weigh down overall home prices, although less than bank-owned foreclosure sales weigh down home prices. “But in the long term, the short sales are a necessary process that will help the market hit a reset button and get these distressed properties into the hands of homeowners who can afford them.”
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Since the second quarter of 2009 and through the fourth quarter of 2011, pre-foreclosures sales have averaged about 89,500 per quarter, with a couple of spikes above 100,000: in the second quarter of 2010 and in the second quarter of 2011. But a look at just-released early 2012 pre-foreclosure sales data from RealtyTrac suggests that change is afoot when it comes to short sales. In January 2012, there were more than 35,000 pre-foreclosure sales nationwide, on pace for more than 105,000 pre-foreclosure sales for the first quarter, which would be the highest quarterly total since the peak back in the first quarter of 2009.
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The shift toward short sales becomes apparent when comparing pre-foreclosure sales numbers to bank-owned sales numbers. In the past, REO sales consistently outnumbered pre-foreclosure sales. Although that continues to be true nationwide, the gap is closing, with only about 2,600 more REO sales than pre-foreclosure sales across the country in January 2012. And in 12 states, including California, Florida, Arizona, New York and New Jersey, pre-foreclosure sales actually outnumbered REO sales in January 2012. Also, in many other states, the gap between pre-foreclosure sales and REO sales is shrinking, indicating that lenders are viewing short sales more favorably when compared to the alternative of foreclosure—followed by maintaining and marketing an REO for sale.
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Further evidence of this change in stance by the lenders is the more aggressive pricing in pre-foreclosure sales. It appears that lenders are finally realizing short sales will sell faster if they are priced correctly. The average price of a pre-foreclosure sale property nationwide was $184,221 in fourth-quarter 2011, down 3.45% from the previous quarter and down 11.26% from the fourth quarter. This trend continued in January, when the average pre-foreclosure sales price was $174,120, down 4% from December and down 10% from January 2011. Not surprising, a lower average price for short sales is also resulting in a bigger discount when compared to the average sales prices of non-distressed homes.
The full report can be viewed by visiting RealtyTrac’s website at www.realtytrac.com.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
