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Nearly one in four home sales a foreclosure

Nearly one in every four U.S. homes sold in the second quarter was a deeply discounted foreclosed house, RealtyTrac said.
A home for sale is seen in Santa Monica
A home for sale is seen in Santa Monica, Calif. Nearly one in every four U.S. homes sold in the second quarter was a deeply discounted foreclosed house, RealtyTrac said Thursday.Lucy Nicholson / REUTERS
/ Source: Reuters

Nearly one in every four U.S. homes sold in the second quarter was a deeply discounted foreclosed house, putting the market on pace to work through distressed properties in about three years, RealtyTrac said.

Banks stepped up foreclosures through the summer and will take over a record 1.2 million homes this year, up from around 1 million last year and about 100,000 in 2005 before the housing bust, according to a forecast from the real estate data company.

Foreclosed homes accounted for 24 percent of all second-quarter sales, at an average price discount of more than 26 percent compared with homes not in the foreclosure process.

"This is the kind of volume of activity that we need to see for the market to heal," RealtyTrac senior vice president Rick Sharga said in an interview.

"Our projections have been that we will get through the distressed inventory largely by the end of 2013, and these kinds of numbers are on target to get us there," he said.

The share of foreclosure sales fell from the first quarter when nearly one in three sales was a foreclosed house sold at an average 27 percent discount, RealtyTrac said in the report released on Thursday.

"In a normal market you're looking at foreclosure sales accounting for low single-digit percentages, probably less than 5 percent of all sales," said Sharga. For the next few years, "it's probably going to be somewhere between one-quarter and one-third of all sales."

Overall housing sales likely will total 4 to 4.5 million a year during this time, he said.

It will take those years to resell homes lost by owners whose jobs or wages were cut or who took out high-risk, unaffordable mortgages. Banks will also need to sell homes from owners who walked away owing more on their mortgage than the house was worth.

Tax credit expires
Unemployment at 9.6 percent, and average home prices that are about 28 percent below 2006 peaks, are keeping the U.S. housing market from staging much of a recovery.

A burst of spring sales to buyers seeking up to $8,000 in tax credits has been followed by a sales plunge after the incentive ended on April 30.

Some buyers likely used the tax credit as a discount, rather than buy a foreclosed house.

James J. Saccacio, RealtyTrac's chief executive, said "the removal of the tax credit could drive more buyers back to discounted short sales and REOs," or real-estate owned homes.

Distressed homes, or ones in foreclosure or short sales, rose to 34 percent of all existing houses sold in August from 32 percent in July and 31 percent a year ago, the National Association of Realtors said last week.

Sales volume rose overall in the second quarter, still boosted by the tax credit.

A total 248,534 properties in some stage of foreclosure — default, scheduled auction or REO — was sold to third parties, up about 5 percent from the first quarter though down 20 percent from the second quarter 2009, according to RealtyTrac.

"Ironically, the higher the percentage of homes that are sold that are distressed properties, and the bigger the number, the quicker we'll get through this housing downturn," said Sharga.

Banks sold more than 151,000 homes they owned, up 3 percent from the first quarter but down 28 percent from a year ago. These REOs were 15 percent of total home sales, down from 19 percent in the first quarter and about 29 percent a year ago.

Nevada, Arizona, California, among the biggest boom-and-bust states, had the highest share of foreclosure sales from April to June. About 56 percent of all Nevada sales, 47 percent in Arizona and 43 percent in California were foreclosed homes.

At least one-quarter of all sales were foreclosed homes in Rhode Island (37 percent), Massachusetts (35 percent), Florida (34 percent), Michigan (33 percent), Georgia (27 percent), Idaho (27 percent), and Oregon (25 percent).

Foreclosure price discounts versus the average price on homes not in the process were biggest in Ohio, Kentucky and California, with a 43 average discount in Ohio. Michigan, Tennessee, Pennsylvania, Georgia, Illinois, and the District of Columbia had average foreclosure discounts of at least 35 percent.