Short sales and foreclosure can be fantastic deals, if you can ever get them to the closing table. Since the onset of the housing crisis, purchasing bank-owned homes have been a notoriously lengthy process, which has contributed to the continuing increases in inventory. There is now some good news, finally, for buyers and investors looking to find an REO property.
Up until recently, the percentage of short sales that were actually approved was very small. Now banks are approving more short sales than ever. In Texas, pre-foreclosure sales, such as short sales, are up 34%, California is up 38%, and in Nevada, these sales are up 43%. In addition, the banks are beginning to price foreclosure homes much more aggressively than they have been since the tsunami of foreclosures began. Sales of homes that are in the stages of foreclosure are up 24% over last year. Clearly, banks are motivated to move these properties off their inventory. For buyers this can mean some spectacular deals on homes that they may have been priced out of previously.
Although the increase in sales activity for pre-foreclosure and foreclosure properties is great news, it is just a fraction of the tremendous inventory on the market, not to mention the inventory still anticipated to hit the market in the months to come. According to a recent report released by Standard and Poors, it is expected to take 47 months – almost 4 years – to move the current level of inventory. This may seem like a long time, but it is considered a good sign as it had been previously anticipated as 52 months worth of inventory. Once this inventory is cleared from the market, it will clear the way for home prices to rebound.
The states that are leading the way in moving distressed properties are, not surprisingly, those who have had the highest rates of foreclosures. California, Arizona, and Nevada all had more than half of the residential home sales reported last quarter in some stage of foreclosure. In Nevada, foreclosure related home sales were 65% of reported residential home sales.
The banks’ willingness to approve more short sales and more aggressive pricing of REO properties has resulted in some incredible discounts for buyers. In some areas, the discount over the sale price of a regularly marketed property can be significant. In areas of Kentucky, Michigan, and Florida, the foreclosure sales prices are averaging more than 50% less than market value.
While the added emphasis on moving REO properties is good for buyers, this doesn’t make the process universally smooth. It does mean that for buyers willing to stick it out, buying a foreclosed home may be one step closer to reality, and for a nation still reeling from the economic blows of the housing collapse, recovery may be one step closer as well.
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