10 Percent Drop in Foreclosure Sales Prices Expected This Year

April  6, 2012

By Joel Cone, Staff Writer

We may finally be seeing the fallout from the delays in the foreclosure process nationwide while the investigation into fraudulent foreclosure practices by  some the nation’s largest lenders and mortgage servicers commenced. As Bloomberg is reporting, those delays may result in as much as a 10 percent additional decline in the sales prices of those foreclosed properties, many of which will be hitting the auction block some time this year.

According to the Bloomberg article, Moody’s Analytics Inc. is estimating that sales of repossessed properties will rise 25 percent this year from 1 million in 2011. Prices for the homes could drop as much as 10 percent, RealtyTrac estimated, because of the deterioration foreclosed homes suffered while being held in reserve during the robo-signing investigations by  state officials which were resolved in February. That month, 43 percent of  foreclosures were delinquent for two or more years, from a 21 percent share in  2010, according to Lender Processing Services Inc.

Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent. A surge of cheap foreclosures may erode prices in the  broader real estate market, even as the economy expands and residential  building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index.

“The question on these aging  foreclosures is how many are going to be sold and affect prices and how many will be complete losses,” Case, professor emeritus at Wellesley College in  Wellesley, Massachusetts was quoted as stating in the Bloomberg article.  “Depending on their condition, they could have a big impact on home prices.”

According  to the RealtyTrac  2011 Foreclosure Sales Report, there were a total 907,000 foreclosed  homes sold in 2011, with another 644,000 in inventory waiting to be sold. Of  those foreclosed homes sold during the year, nearly 370,000 were pre-foreclosures (mostly short sales), and 537,000 were bank owned homes. Foreclosure sales accounted for 23 percent of all homes sales nationwide during the year  for an average discount of 33 percent and at an average sales price of  $164,349.

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