Foreclosure and Bargain No Longer Synonymous

The glut is over and, so it seems, the foreclosure bargain bonanza. Nationally, foreclosure sales prices rose 6 percent in the second quarter and were up 7 percent year-over-year, RealtyTrac reported this week. This marks the largest annual increase in foreclosure-related sales prices since 2006. During the second quarter, the average foreclosure-related sales price was $170,040. Still, foreclosure and bank-owned homes sold at an average price that was 32 percent lower than the average price of a non-foreclosure home, RealtyTrac reports.

Meanwhile, the gap between REO sales and short sales continued to narrow during the second quarter. REO sales outnumbered pre-foreclosure sales by 9,833 — the smallest difference since the third quarter of 2007. The number of short-sale transactions rose 18 percent year-over-year, accounting for 14 percent of all sales during January through May time period, RealtyTrac reports.

Does the Atlanta real estate market follow this trend? Depends on area and price point. Clearly, distressed sales (short sales & foreclosures) remain a major influence in Atlanta, the area continues to rank at the very top of the national rankings in volume of distressed homes. Chartmasters reviewed the 2nd quarter with a few key observations concerning the influence of distressed homes:

• A deterrent to full market recovery may be hampered by the high percentage of distressed properties in both sales (44.7%) and currently active listings (25%). This can cause buyers to seek those lower-priced alternatives when non-distressed properties appear to be priced higher. This caused 55% of sellers to take listing price reductions in order to sell and 32% of all 2Q 2012 listings fail to sell during their listing period.
• The low (1.9 months) inventory of distressed properties has likely increased competition among buyers, forcing prices higher, S/L ratios higher, DOM lower and fewer listings failing to sell.
• It is difficult to know whether or not this will attract more people to list properties now which could alter the supply/demand relationship at a time when seasonal factors usually cause lower demand. If so, that could result in another reversal of many of these positive 2Q 2012 market characteristics.
• Another dampening factor may result if financial institutions release more distressed properties to the market.

Distressed sales in Atlanta comprised 75% of 2nd Qtr '12 sales under 100K and 46% of the sales between 100K-200K. But the total of all distressed sales activity in 2nd Qtr '12 was 15.2% lower than the 1st Qtr. Keep in mind, these numbers vary significantly by location and a major part of these are directly attributable to the inventory in the city of Atlanta. The bottom line is that the banks are no longer giving these homes away, list prices are reflecting a strengthening market and the days of getting in well below market with a foreclosure are all but gone.