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The High-End Foreclosure Sales Non Sequitur

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High-end home sales are increasing as sellers of these homes agree to sell for less than they may have originally wanted, according to a recent piece on CNBC that cited RealtyTrac data.

The data clearly demonstrate that high-end sales are increasing while the average price of those high-end sales is declining. In the first five months of 2012, a total of 22,601 homes sold for $1 million or more, an increase of 23 percent from the first five months of 2011 and an increase of 16 percent from the same time period in 2010.

Meanwhile, the average sales price of homes selling for $1 million or more in the first five months of 2012 was nearly $2.1 million, a decrease of 12 percent from the same time period in 2011 and a decrease of 17 percent from the first five months of 2010.

The fairly obvious conclusion from this combination of rising sales and falling average prices is that high-end home sellers “are capitulating” as I say in the article.

But what correspondent Robert Frank didn’t address is another possible reason behind the price capitulation on the part of high-end home sellers: the threat of imminent foreclosure. After sending the overall high-end sales data to Frank, I decided to dig a little further to see how many of these sales involved homeowners in the foreclosure process.

What I found is that sales involving homeowners in the foreclosure process are a growing segment of the high-end market. During the first five months of 2012, a total of 520 properties some stage of foreclosure sold for $1 million or more, an increase of 81 percent from the same time period in 2011 and an increase of 137 percent from the first five months of 2010.

These disproportionate increases mean that sales of foreclosure homes now represent 2.30 percent of all high-end sales, up from 1.57 percent of all sales in 2011 and 1.12 percent of all sales in 2010.

This leads to the logical conclusion that a higher percentage of foreclosure-related sales are dragging down the overall average prices of high-end homes. The capitulation on the part of these high-end home sellers may be because more of those home sellers are facing imminent foreclosure.

But in fact the data shows the opposite. The average price of high-end foreclosure sales in the first five months of 2012 was $2.4 million, above the average price of overall high-end home sales and an increase of 17 percent from the same time period in 2011.

So what would explain this seemingly incongruous data? I’d like to get your thoughts in the comments section, but my working theory is that high-end homeowners are parlaying the restriction of foreclosure supply over the past 18 months into an opportunity to attract multiple offers for their properties and therefore drive up the final sales price.

Find foreclosures, short sales and bank-owned REOs nationwide with a free foreclosure search on RealtyTrac.

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Comments

Darren, 1. Perrhaps only 2.3 percent of sales, even though a large increase over last year, can't be expected to have much of an impact on overall prices one way or another? Maybe something else is going on? 2. Home price improvements in middle and lower tier price ranges are largely the result of a 20 percent reduction of inventories. Inventories have not fallen as much in the luxury category for two reasons: many fewer luxury owners are frozen by negative equity so they can more easily sell. Second, because foreclosures are such as small segment of kuxury sakes compared to lower tier sales, luxury inventoruies have felt the decline in distress sales coming to market much less than lower tier inventories. As you know, this decline in distress sales results from slow processing and improving default rates. In fact, as you say, luxury foreclosures are up. 3. Data from the Institute for Luxury Home Marketing shows list prices rising significantly over the past six months while the percent of listed properteis with at leat one price decrease is nearly a third, 32%, which supports your point about sellers lowering prices. 3. Could it be that sellers are reacting not so much to fear of foreclosure but to the fact that supply has still been too great in many luxury mnarkets? ILHM shows days on market for luxury sales at 185 last week, way above the 88 days for all listings reported by Realtor.com in July. The large inventory declines and improving prices that started at the lower triers in devastated foreclsoure markets 12 months ago are just now reaching and stabilzing some upper tier markets, largely in the West, so perhaps luxury repricing will diminish. Steve Cook Real Estate Economy Watch and UPI Posted: August 21, 2012 by: Steve Cook

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