Results from a new Campbell/Inside Mortgage Finance HousingPulse Tracking Survey has found that delays in the short sale process have taken their toll on first-time homebuyer interest, as first-time homebuyer purchases of short sales dropped to 39.7 percent of short sale transactions in August. That total represented a three-month slide and was the lowest level for first-time homebuyers ever recorded by the survey. The first-time homebuyer share of short sales hit a peak of 54.1 percent of all short sale transactions in November of 2009, just before the originally-scheduled expiration of the federal homebuyer tax credit.
The study polled approximately 2,500 real estate agents nationwide, and covers up-to-date intelligence on home sales and mortgage usage patterns.
"While mortgage servicers are certainly not blameless, these delays are often the result of poorly submitted paperwork," said Erik Wind, co-founder of ShortSaleSpeedway. "When a buyer works with organized professionals who know how to negotiate a short sale and submit the correct paperwork, their expectation is better managed and the processing time is often shorter than the norm."
Still, for many first-time homebuyers, average short sale prices of 27 percent lower than non-distressed properties compensated for the wait time. But with average time-on-market for short sales stalled at 16.6 weeks—with the majority of that time spent waiting for short sale approval—short sale transactions are becoming less popular with first-time homebuyers.
Short sales are just one type of distressed property, with damaged real estate-owned (REO) properties and move-in ready REO properties also being significant components of today’s housing market. In August 2011, short sales accounted for 17.1 percent of the home purchase market, with damaged REO and move-in ready REO accounting for 13.2 percent and 15.6 percent, respectively. The total proportion of distressed property, as represented by the HousingPulse Distressed Property Index (DPI), fell to 45.9 percent in August from 46.2 percent in June.
"If we could get banks to move faster on approving short sales—especially where first-time homebuyers are involved—I am certain we can consume more inventory in a shorter period of time," said Wind. "The real estate market has many headwinds, but those buyers who are out there now are committed to buying a home and want to take advantage of the current interest rate environment. They want to buy and they want to close quickly."
Real estate agents responding to the August survey indicated that homebuyers frustrated with short sale delays are resorting to placing offers on multiple properties, with the intention on closing on only one. This practice can bog down the short sale approval process at mortgage servicers.
The state of California remains a hotbed of short sale activity, was sales in the state account for 31 percent of home purchases in the month of August. Numerous California real estate agents provided comments about short sales for the survey.
“Short sales buyers/investors were generally looking at several properties and if one already had first and second approval, buyers would move towards the property that had a better chance of closing sooner. They would get tired of waiting on the short sale process,” said one agent.