Inside Real Estate News

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3rd-party foreclosure sales 30% of Colorado market

There were 4,535 distressed home sales in Colorado in the first quarter, accounting for slightly more than 30 percent of all of the homes sales in the state, shows a national report released today.

The report by RealtyTrac, based in Irvine, Calif., for the first time released a report tracking third-party sales by banks. The sales, which occur during any phase of the foreclosure process, typically fall into two broad categories, Rick Sharga, spokesman for RealtyTrac told InsideRealEstateNews. The first category is short sales, in which the bank agrees to accept less than the mortgage amount. The second category is after the bank has acquired the home in what is known as a REO (Real Estate Owned) and subsequently sells it to someone else.

In the fall, RealtyTrac plans to start breaking out short-sale data for each state, Sharga said.

An earlier report by the Colorado Division of Housing, showed 6,686 foreclosed homes being sold at public trustee auctions in Colorado during the first quarter.

Tracking short sales

“Our number for total sales is very close to that number,” Sharga said. “With this report, w were looking at third-party, arms-length sales. We did not count the foreclosure sales when the bank was the highest bidder.” Banks often bid the amount of the outstanding loan, as that does not cost them any money out of pocket. Investors can bid more, if they think the house is worth more. Typically, if a house had equity in it – that is the house had value beyond the loan amount – the homeowner would be better off selling the home on the open market. It’s estimated that nationally, one out of every four mortgages is underwater.

“There 4,535 number does still seem surprisingly low,” said Ryan McMaken, of the Colorado Division of Housing, who researches and authors state-wide foreclosure reports. “RealtyTrac is obviously using a different methodology that we do. I think their data will be valuable for future comparisons, rather than the absolute numbers.”

We’re talking $866 million in home sales

According to RealtyTrac, first-quarter, third-party foreclosure sales are down 30.21 percent from the first quarter of 2009 and down 16.79 percent form the fourth quarter of 2009. That is down slightly from the respective national averages of 33.18 percent in the third quarter 2009 and 14.04 percent in teh fourth quarter. The average sales price of a a home was $191,006, about 11 percent higher than the national average of $171,971. The total value of the 4,535 homes is about $866.2 million. The overall average discount was 24.51 percent. In other words, it would be more than $1 billion of homes impacted, if they could have fetched market prices. The average REO discount in Colorado was 30 percent, compared with 34 percent for the nation, while the average pre-foreclosure discount was 17.62 percent in Colorado, compared with 14.77 percent for the nation.

“I think Colorado has settled down quite a bit,” Sharga said. “I don’t think they are out of the woods, yet. I think the worst is over, unless you get hit with another wave of unemployment. Colorado does appear to be in danger of that happening, and Colorado seems to be weathering this economic storm better than most places.

McMaken, of the housing division, noted that foreclosure activity was peaking in 2007 in Colorado, at a time when the rest of the nation was just staring to feel the brunt of record numbers of people losing their homes.

National numbers

Colorado accounted for about 2 percent of the 232,959 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the first quarter, a decrease of 14 percent from the previous quarter and down 33 percent from the peak during the first quarter of 2009, when sales of foreclosure homes accounted for 37 percent of all residential sales.

“First time home buyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts,” said James J. Saccacio, chief executive officer of RealtyTrac. “As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration.”

The average sales prices on properties in some stage of foreclosure decreased 23 percent from 2006 to 2009 while the average discounts on foreclosure purchases steadily increased from 21 percent in 2006 to 27 percent in the first quarter of 2010. Discounts on REOs are larger than discounts on pre-foreclosures. However, discounts on pre-foreclosures appear to be trending higher as short sales become more common.

Foreclosure sales increase 2,500 percent from 2005 to 2009 More than 1.2 million U.S. properties in some stage of foreclosure sold to third parties in 2009, an increase of 25 percent from 2008 and an increase of nearly 327 percent from 2007. Total foreclosure sales in 2009 were up more than 1,100 percent from 2006 and up more than 2,500 percent from 2005. Foreclosure sales accounted for 29 percent of all sales in 2009, up from 23 percent in 2008 and up from 6 percent in 2007.

Foreclosures carry 25 percent discount

The average sales price of properties that sold while in some stage of foreclosure in 2009 was 25 percent below the average sales price of properties not in the foreclosure process. That was up from an average discount of 22 percent in 2008 but down from an average discount of 26 percent in 2007. The average foreclosure discount in 2005 was 35 percent, driven by a nearly 50 percent discount on REOs; however, the discount on pre-foreclosures trended up slightly over the same five-year period, from nearly 12 percent in 2005 to 15 percent in 2008 and 2009.

National snapshot

A total of 144,503 bank-owned properties sold to third parties in the first quarter, down 13 percent from the previous quarter and down 27 percent from the first quarter of 2009. REO sales accounted for 19 percent of all sales in the first quarter, up from nearly 16 percent in the previous quarter but down from 21 percent of all sales in the first quarter of 2009. REOs sold for an average discount of 34 percent, up from an average discount of nearly 32 percent in both the previous quarter and the first quarter of 2009.

A total of 88,456 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the first quarter, down 15 percent from the previous quarter and down nearly 41 percent from the first quarter of 2009. Pre-foreclosure sales accounted for nearly 12 percent of all sales, up from nearly 10 percent in the previous quarter but down from 16 percent in the first quarter of 2009. Pre-foreclosures, which are often short sales, sold for an average discount of nearly 15 percent, up from nearly 14 percent in the previous quarter but down from 16 percent in the first quarter of 2009.

Nevada, California, Arizona hit hardest

Nevada, California, Arizona posted highest percentage of foreclosure sales in the first quarter, accounting for 64 percent of all sales in Nevada in the first quarter, the highest percentage of any state, although Nevada’s percentage was down from 65 percent of all sales in the previous quarter and 75 percent of all sales in the first quarter of 2009.

California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009. Foreclosure sales as a percentage of all sales were also down in Arizona from the first quarter of 2009, but the state still posted the third highest percentage in the first quarter, with foreclosure sales accounting for 50 percent of all sales.

Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon. Ohio, Kentucky, Illinois had the highest foreclosure discounts.

Inside Real Estate News

Colorado's Real Estate News Source

Case-Shiller: Denver home values rise 6th consecutive month

Take a poll at the end of this blog and vote on whether you think this rising trend will continue.

Denver-area home prices rose an average of 4.4 percent in April from April 2009, marking the sixth consecutive month of year-over-year gains, shows the closely watched S&P Case-Shiller Home Price Indices released today.

The 4.4 percent gain was the largest since the trend began in November 2009, when prices were up 0.5% from November 2008. Each month, the percentage gain has grown.

Still, the 4.4 percent was only good for eighth place of the 20 metropolitan statistical areas tracked by Case-Shiller, as other markets, which previously had shown greater losses than Denver, are now enjoying greater percentage gains. San Francisco showed the biggest gain, rising a whopping 18 percent from April 2009.

Increases may continue

“I think the increases are sustainable,” said Gary Bauer, an independent broker who completes his own monthly report using Metrolist data.

The Denver market, as the nation as a whole, was helped in April as buyers and brokers scrambled to put homes under contract by April 30 to quality for a federal tax credit worth as much as $8,000.

“I think we are going to see much lower increases going forward,” Bauer said. “I do think the Denver market should get a lot of credit for six continuous months of year-over-year increases. But I do think the tax credits helped Denver and every other market in the country. I do think the trend is continuing, but at a much smaller proportion.” Qualified buyers who are seeking the tax credits have until the end of Wednesday to close on the homes.

May figures will be telling

But Tom Cryer, a broker withe the Kentwood Co. is not so sure how sustainable the entire home sales market remains in the wake of the end of the tax credits.

“I can tell you my first response is, “I can’t wait until we see the May figures,” Cryer said. “That will be the end of our six-month run. Absolutely. The front desk is all-knowing and all-seeing. We all have had fewer showings since April 30 and if you don’t have any showings, you don’t have any contracts.”

On the other hand, because Case-Shiller tracks appreciation, and not the number of sales, the end of the tax credits could bode well for Denver, he said. Case-Shiller uses “paired sales” of single-family homes to avoid the “price drift,” or the potential of bigger homes entering the market and skewing the data.

Low-priced homes no longer driving market force

“If you figure that the tax credits did not impact the move-up or move-down market very much, but primarily had an impact on the low-end of the price range, now, moving forward, those people at the lower-rung of the market, no longer have incentives to be part of the market,” Cryer said. “Could that mean that as we go forward, the bottom of the market has been taken away? Here is my updated prediction: The average price of a home cold go up, now that the bottom has been taken away, but the number of transactions will go down.”

Also, with fewer transactions, big sales will have a disproportionate impact on the overall numbers, he said. For example, a broker in his office recently put a home under contract for $2.8 million, which previously had been listed at $5 million.

“One $2.8 million sale makes up for a lot of $150,000 transactions,” Cryer said.

Case-Shiller doesn’t tell you what your home will fetch

Cryer said that while reports such as Case-Shiller “make for interesting conversations and I love to hear about and discuss this kind of stuff,” the truth is that it has little to do with what any individual can fetch for his or her home.

“Real estate is still a Main Street kind of business,” Cryer said. “Clearly, we have some blocks and enclaves in the Denver area that are just still performing very poorly. And we have other enclaves that are so hot you can drive through them and hardly see a For Sale sign. It’s all about “location, location, location,” while 60 days ago it was “timing, timing, timing,” when the the tax credits were still available.

Stephen Holben, a custom home builder, agrees with Cryer that real estate is very local

“As I have expressed before, (Case-Shiller) has nothing to do with the value of anybody’s property,” said Holben, principal of Holben Building Corp. “But it has been embraced as though it does, so what can you do? If it helps people function again, post on a billboard. I’ve been in this biz for almost 40 years, and I’ve never seen people behave as they are these days. We’re into year six of what I call The Great American Housing Beatdown.”

The Real Estate Tipsheet

Thursday, July 1, 2010