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.