Survey finds nearly 50 percent of home purchases are distressed properties
The share of home purchase transactions involving distressed properties surged to almost half in February, according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. Last month, distressed properties, defined as involving homes acquired as part of a foreclosure or pre-foreclosure sale, accounted for 48.1 percent of the home purchase transactions tracked in the monthly survey. This was an increase from the 37.3 percent level recorded as recently as November. It was also the highest distressed property market share seen since last July.
Increased government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market.
There are three major types of distressed properties: damaged real estate-owned (REO), move-in ready REO, and short sales. During the period from November to February, the proportion of all three categories rose; damaged REO grew from 12.3 percent to 14.4 percent, move-in ready REO grew from 12.6 percent to 16.6 percent, and short sales grew from 12.4 percent to 17.1 percent.
“Short sales now account for the number one category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”
Meanwhile, in a hopeful sign for the housing market, first-time homebuyers are once again playing a growing role. The latest survey showed that the share of first-time homebuyers grew from 38.9 percent in January to 42.9 percent in February. Much of this growth is attributable to a major tax credit due to expire this spring. In order to qualify for an $8,000 tax credit, first-time homebuyers must have signed a purchase contract by April 30 and must close the transaction by June 30. As more distressed properties have come onto the market, home prices are again showing signs of weakness. Average home prices for all four categories of properties--damaged REO, move-in ready REO, short sales, and non-distressed--declined from January to February in the latest survey.
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