Short Sale Tsunami Possible in 2012

This is the third article in a series spotlighting short sale trends in early 2012, which seem to indicate that short sale volume is on the rise while short sale prices are trending lower — a good mix  for prospective buyers and investors. This series is largely based on a short sale reportissued by RealtyTrac for a special live broadcast hosted by the Charfen Institute on April 19. Download the full RealtyTrac report.

Three increasingly large waves of potential short sales are rolling toward the shores of the U.S. housing market.

1. Pre-Foreclosure Properties

First are properties already in the foreclosure process but not yet foreclosed. These represent homeowners in distress who may be able to gracefully exit a tough situation via a short sale. There are more than 715,000 of these pre-foreclosure properties nationwide, according to RealtyTrac data.

And foreclosure starts nationwide increased for three straight months, indicating the number of pre-foreclosure homes could grow larger. Foreclosure starts dipped in April, but the large pools of at-risk mortgages not yet in foreclosure indicate that dip may be a temporary blip.

2. Delinquent Mortgages

The first is pool is delinquent loans that have not yet started the foreclosure process. According to the Mortgage Bankers Association, there are nearly 3.5 million delinquent mortgages nationwide in this category.

A sizeable portion of these delinquent mortgages are seriously delinquent, meaning that the homeowner is more than 90 days late on mortgage payments. These seriously delinquent loans are at high risk for entering foreclosure.

3. Underwater Mortgages

The second, even larger, pool of potential future short sales is underwater homeowners.

A RealtyTrac analysis of 45 million outstanding mortgages nationwide shows that 28 percent are seriously underwater, meaning that they owe at least 25 percent more on their mortgage than what their home is worth. Another 8.3 million homeowners are at least somewhat underwater.

Even if these homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale.

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Related Articles
Will Short Sales Finally Save the Housing Market?
A Shift Toward Short Sales in 2012
5 Steps to Buying a Pre-Foreclosure (Short Sale)

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