Foreclosures Still Weighing Down the Real Estate Market

For over a year, between one-quarter and one-third of all U.S. home sales have been foreclosures, according to RealtyTrac, an online foreclosure marketing firm. As you might expect, that is having a depressing effect on values.

In it's report on the first quarter of 2011, RealtyTrac said the average sales price of properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — was $168,321, down 1.89 percent from the fourth quarter of 2010 and down 1.46 percent from the first quarter of 2010.

Homes in foreclosure were 27 percent cheaper than homes not in foreclosure, making it much harder for homeowners to sell their homes. Still, overall prices appear to be more stable than in quarters past.

Delaying the recovery

“While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties sold to third parties,” said James J. Saccacio, chief executive officer of RealtyTrac. “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery. At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

Some cities, of course, have more foreclosures than others. These tend to be markets where home prices escalated during the housing bubble.

Nevada, California still hard hit

In Nevada, for example, foreclosure sales accounted for 53 percent of all residential sales in the first quarter, the highest percentage of any state but down from nearly 54 percent of all sales in the previous quarter and down from 59 percent of all sales in the first quarter of 2010.

The average foreclosure sales price in Nevada during the first quarter was nearly 18 percent below the average sales price of homes not in foreclosure. Bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 130 days prior to sale, while properties that sold in the earlier stages of foreclosure were in foreclosure an average of 135 days before selling.

California foreclosure sales accounted for 45 percent of all residential sales in the state during the first quarter, up from 43 percent of all sales in the fourth quarter but down from nearly 48 percent of all sales in the first quarter of 2010.

The average foreclosure sales price in California was nearly 34 percent below the average sales price of homes not in foreclosure. California bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 164 days prior to sale, while properties that sold in the earlier stages of foreclosure were in foreclosure an average of 156 days before selling.

Some optimism

Despite the negative numbers, some analysts in recent days have begun to sound a note of optimism about housing. This week, for example, Yahoo! ecnomics editor Daniel Gross offered the contrarian view that we could be on the cusp of a “housing boom.” He points to demographic data that suggest household formation alone will require construction of more than one million new homes a year over a ten year period.

“Unless we start picking up the pace of new-home construction, and soon, the U.S. could face a housing shortage in the not-too-distant future,” Gross writes. “That's the line coming from one of the most sober, data-driven, non-ideological sources I know: Macroeconomic Advisers.”

Investors, many of whom are making all-cash purchases, appear to be driving the housing market at the moment, and they are also among the more optimistic about the sector.

A recent survey by the online real estate firm Move Inc., showed investors are among the most bullish about the outlook for housing. The reasons they give? You can buy and fix up a home for very little money, and there's little competition from traditional buyers, who are either uninterested or can't get the financing.