Katonah NY Homes | Foreclosure Drought and Declining Discounts Depress Investor Sales

The market share of foreclosures and short sales has fallen 27 percent from a year ago, pulling down March overall existing home sales 2.6 percent as inventories of foreclosures and short sales suddenly declined last month.

Foreclosures and short sales accounted for only 29 percent of March sales (18 percent were foreclosures and 11 percent were short sales), compared with 34 percent in February and 40 percent in March 2011, according to the National Association of Realtors. Distressed sales have hovered in the 30 to 35 percent range for a number of years, with heavy sales concentrations in a few states.

ForeclosureRadar, which covers five Western States, reports a similar dramatic drop in the number of properties sold at foreclosure auctions. Foreclosure sales in California are down 16.7 percent from February to March 2012 and down 53.1 percent from March a year ago. A total of 86,487 sales were scheduled to occur in California, but of those 80.0 percent postponed, and 10.6 percent were cancelled, leaving just 8,392 that were actually sold. Third parties, typically investors, purchased a record 38.6 percent of the properties that did sell in California.

Markets around the nation also report a decline in distressed sales. Colorado January 2012 foreclosure sales were down compared to January 2011 with a decrease of 23.3 percent from 1,499 to 1,150. The number of home sales in the Baltimore metro area that are not distress deals – neither foreclosures nor short sales – jumped about 25 percent in March from a year earlier, according to numbers released by the Metropolitan Regional Information Systems.

Investors purchased only 21 percent of all homes sold in March, down from 23 percent in February and 22 percent in March 2011. First-time buyers accounted for 33 percent of transactions in March; they were 32 percent in February and 33 percent in March 2011. All-cash sales, a measure of investor actifity, slipped to 32 percent of transactions in March from 33 percent in February; they were 35 percent in March 2011.

NAR said fewer numbers of foreclosures and short sales accounted for the decline in sales, but falling discounts may have also dampened investor interest. Foreclosures typically sold for an average 19 percent below market price in March, while short sales were discounted 16 percent, according to the National Association of Realtors. The average sales price of a bank-owned foreclosure in the fourth quarter was 36 percent below the average sales price of a non-foreclosure home, while the average discount on bank-owned homes for all of 2011 was 40 percent, according to RealtyTrac’s Fourth Quarter and Year-End 2011 U.S. Foreclosure Sales Report (see Foreclosure Discounts Shrink in 2012).