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Survey Says Foreclosure Mess Prompts Homebuyers to Avoid REOs and Distressed Properties

Nov 22, 2010

The ongoing controversy surrounding foreclosures is taking its toll on the housing market as a significant share of home shoppers refused to even look at distressed properties in October, according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. Meanwhile, both the share of home purchases involving distressed properties and average prices for foreclosed properties fell last month, the survey found. News reports that major servicers were pulling real estate owned or foreclosed properties off the market, including some already under contract, clearly spooked would-be homebuyers. The closely-watched monthly survey found that 14 percent of owner-occupant homebuyers and six percent of investors refused to view foreclosed properties in October. This homebuyer fear was even worse for short sale properties where 30% of owner-occupant shoppers and 20 percent of investors refused to view these homes. Servicing problems disrupted both short sales and real estate-owned (REO) sales last month. Survey results show that 24 percent of closings scheduled for October were delayed or canceled due to issues with short sales, while 12 percent were delayed or canceled due to REO title issues. Although distressed properties have dominated home sales for much of this year, recent foreclosure problems helped trigger a noticeable dip in their share of the market last month. In October, distressed properties accounted for 44.3 percent of transactions tracked in the latest survey—down from 47.5 percent in September. Not surprisingly, the drop in overall distressed property sales activity helped produce a decline in average prices for short sales, move-in ready REO and damaged REO in October. At the same time, average prices for non-distressed properties rose. "It's clear that decreased homebuyer demand for distressed properties has resulted in lower prices," said Thomas Popik, research director for Campbell Surveys, "Homebuyers were squeezed into non-distressed properties that resulted in a higher average price for this type of transaction." "With the foreclosure ‘fraud’ issue still out there, buyers are skeptical to purchase a REO. Until the fraud mess gets cleared up, most of our clients are second guessing their interest in REO properties,” reported a Florida real estate agent responding in the latest survey. “Since short sales are more than likely to fail before closure, I completely discourage buyers from wasting their time or mine if they NEED to buy a home. There is no telling how many good deals or properties the buyer could miss while waiting for any type of answer (even a ‘no’ takes up to 12 months),” said an agent located in Michigan. For more information, visit
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