Rate of Distressed Home Sales Increasing

By:: Peter King | April 09, 2010

Distressed home sales are rising, reaching 29 percent of all U.S. sales in January, according to the mortgage and real estate data firm First American Core Logic.

It’s the highest level of distressed sales since April 2009, though still below the recent peak reached in January of that year, when distressed sales reached 32 percent of all real estate transactions. The rate of distressed sales fell off significantly last spring as moratoriums and other anti-foreclosure efforts were implemented at the state and federal level, but rose sharply again in December and January.

The recent low was hit in July 2009, when distressed sales constituted 29 percent of home sales. In the current economic downturn, distressed sales began to rise around September 2007, prior to which they had held below the 5 percent mark for an extended time.

Sales of foreclosed properties made up 22 percent of all home sales in January, with short sales accounting for the remaining distressed sales.

Among the largest U.S. housing markets, Riverside, Calif. had the highest rate of distressed sales in Januray, at 62 percent of residential real estate transactions. The next two spots were held by Las Vegas, Nev., and Sacramento, Calif., at 59 percent and 58 percent, respectively.

The highest rate of foreclosed property, or Real Estate-Owned (REO) sales was the Detroit, Mich. market, where REOs made up 48 percent of all sales. San Diego, Calif. had the highest rate of short sales, at 19 percent of all sales.

Ironically, although Florida has the nation’s 10 highest foreclosure rates, only two of the state’s housing markets, Orlando and Cape Coral, were among the top 10 for distressed sales rates. The report attributed this to the state’s judicial foreclosure law, where the foreclosure process must go through the courts and therefore takes significantly longer than in nonjudicial foreclosure states like Arizona, Nevada and California.

The study suggests that lenders realize a significant price advantage from properties that are allowed to go to short sales rather than through the foreclosure process. The average price for a property sold as a short sale was $215,300, compared to $141,900 for REO properties.

Overall, the average price for a non-distressed home sale in January was $247,700, compared to $161,600 for a distressed sale. The discount for distressed sales has been running at about one-third off the price of standard sales for the past 12 months, the report said.

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