Foreclosure Discount Gets Bigger & Bigger

Buy low and sell high is a traditional real estate investing strategy and with good reason: Unlike the stock market you can’t sell homes short and make a dime.

Thus it makes considerable sense to buy property at the lowest possible price and that brings us to RealtyTrac’s foreclosure report for the second quarter:

“The average sales price for homes in foreclosure or bank owned was 32 percent below the average sales price of homes not in foreclosure,” said RealyTrac.

A year ago, in the second quarter of 2010, the company reported that the foreclosure discount was 26 percent.

You can also see something else: The percent of all sales which are distressed has risen from 24 percent last year to 31 percent in the second quarter of 2011.

These numbers are hard to ignore. They tell us that massive numbers of homes facing foreclosure or which have been foreclosed remain available at discount.

National Association of Realtors

The National Association of Realtors reported for July that by its measure “distressed homes — foreclosures and short sales typically sold at deep discounts — accounted for 29 percent of sales in July, compared with 30 percent in June and 32 percent in July 2010.”

Okay, so how much is a “deep discount.” According to NAR spokesman Walter Molony a typical distressed sale price is roughly 20 percent lower than the price for a home which is not facing foreclosure or was not lender-owned.

The enormous gulf between distressed homes and the rest of the housing stock raises several questions:

First, why buy a home at a retail price when discounts are widely and plainly available? The answer may well be that it’s often difficult and time-consuming to deal with lenders. That said, a 32-percent discount is quite a reward for patience and persistence.

Second, where is the mortgage money? Rates have recently been at a 50-year low, something which should encourage borrowing and yet large numbers of distressed homes are bought for cash — NAR says cash purchases in July accounted for 29 percent of all existing home sales.

It’s obvious that lenders are awash in both cash and real estate — otherwise rates would be higher and distressed sales would be a smaller percent of the market. If lenders want to get rid of the shadow inventory which threatens their stability and holds down home prices nationwide it’s clear that they need to readily finance the purchase of distressed homes to investors and home buyers with 10 percent down, a verified income and an ongoing pulse.

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Posted in: Foreclosures

1 Comment on "Foreclosure Discount Gets Bigger & Bigger"

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  1. poopii says:

    Poopii The Wise says wait 5 more years and see where we are at.

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