By John W. Schoen, Senior Producer
The ongoing wave of foreclosures continues to drag home prices lower.
Foreclosure-related properties, which made up roughly one in five home sales in the third quarter of ?last year, sold for an average 34 percent less than homes that were not ??distressed sales,? according to the latest data from RealtyTrac, a housing data research firm.
Foreclosures accounted for a smaller share of total sales as banks already glutted with properties slowed the pace of new seizures until they could unload the houses they already owned. The share of distressed sales also slowed last year following a slowdown in new foreclosures after consumer complaints and lawsuits challenging seizures that resulted from ?robo-signing? and other questionable document practices.
?The sooner the market gets more clarity about accepted foreclosure procedures, primarily through the long-promised settlement between multiple states attorneys general and major lenders, the sooner the market can more efficiently dispose of these distressed properties,"?said Brandon Moore, chief executive officer of RealtyTrac.
Reforms of those procedures are part of a recently proposed, comprehensive settlement with lenders over abusive foreclosure practices. But the settlement, which is being touted as a program to save homes from the sheriff?s sale, could have the perverse effect of increasing the pace of foreclosures if it helps insulate bankers from potential lawsuits.
Even with the slowdown in home seizures and the legal complications often involved in buying those properties, foreclosure sales represent a historically high percentage of all sales, according to RealtyTrac. During the housing boom years of 2005 and 2006, less than 5 percent of all home sales were foreclosure-related. In the third quarter, the share reached 20 percent, down from 22 percent in the second quarter and 30 percent in the third quarter of 2010.
Those percentages are much higher in the states hardest hit by the housing collapse. In Nevada, foreclosure-related sales accounted for nearly 57 percent of all residential sales during the third quarter, the highest percentage of any state. ?In California 44 percent of the sales were foreclosure related, followed by Arizona (43 percent), Georgia (34 percent), Colorado (26 percent) and Michigan (23 percent).
Some sellers and real estate agents have tried to draw a?distinction?between foreclosure-related truncations and ?non-distressed? sales in determining the price of the next sale of a comparable home. But just as the latest sale of a share of stock determines the starting point for the next transaction,?home buyers are using those distressed sales as a benchmark when making their bid.
The result is that sellers have been marking down their asking prices to match those distressed sales, according to separate research by FNC, another housing research firm. The company found that price cuts in December rose to their highest levels in nearly a year. The average markdown for non-distressed properties rose in the fourth quarter to 4 percent by December. Discounts were higher in the weakest local markets; one in four ?non-distressed? houses was marked down by more than 16.2 percent from the initial asking price.
Distressed sales fall into roughly two categories: properties already owned by banks and those at various stages of foreclosures, some of which may be sold in a ?short sale? before the foreclosure is final. Once owners have moved out, bankers who own the property are much more willing to cut prices because they now bear the cost of maintaining it. Compared to a non-distressed sale, the average discount for a bank-owned property was nearly 42 percent in the third quarter of 2011, according to RealtyTrac. That compares with a discount of just 24 percent for properties earlier in the foreclosure pipeline.
Some local markets are seeing much bigger price cutting. The Trenton-Ewing, N.J., metro area posted the biggest foreclosure discount of 68 percent below the average sales price of homes not in foreclosure. Discounts were also steeper than average in St. Louis (55 percent), Milwaukee (53 percent), Springfield, Mass. (52 percent), Saginaw, Mich. (52 percent), New Haven-Milford, Conn. (51 percent), Memphis (51 percent), San Francisco (51 percent), Toledo, Ohio (50 percent), Bridgeport-Stamford-Norwalk, Conn. (50 percent), and Atlanta (50 percent).
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