The rumors of the demise of REO sales may have been greatly exaggerated — at least in some markets.
Sales of bank-owned homes in the third quarter increased 19 percent from the previous quarter nationwide, but were still down 20 percent from the third quarter of 2011.
But in some states REO sales jumped much more dramatically. Sales of Ohio foreclosed homes spiked 70 percent from the previous quarter, the biggest quarterly jump of any state. Sales of Ohio REOs were up 17 percent from a year ago.
Missouri, Florida, Michigan and North Carolina all saw sales of bank-owned homes increase more than 50 percent from the previous quarter. In Texas, REO sales jumped 49 percent from the previous quarter. In all, sales of bank-owned homes increased from the previous quarter in 34 states and the District of Columbia.
These increases demonstrate that while foreclosure activity is down and lenders are shifting more to short sales as the preferred method of disposition of their distressed properties, there is still some REO inventory that needs to be sold off.
The number of REO sales will likely never return to the heights of late 2008 and early 2009, when REO sales were averaging more than 170,000 per quarter and 22 percent of all residential sales. Even with the increase from the previous quarter, REO sales nationwide totaled 94,934 and accounted for about 10 percent of all sales.
In comparison, short sales occurring on properties not in foreclosure accounted for 22 percent of all sales in the quarter, increasing 15 percent from the previous quarter and up 17 percent from a year ago.
Nevertheless, there is still life left in the REO sales market. While many banks are motivated to avoid the increasingly messy and costly foreclosure process, there are some properties where the only viable alternative is foreclosure.
The good news is that the recent influx of foreclosure sales is not cratering home prices in a market that is hungry for more affordable inventory of homes for sale. The average price of a foreclosed home in the third quarter was $161,954, a decrease of 7 percent from the previous quarter but still up 7 percent from the third quarter of 2011.
The average REO prices are up even more from a year ago even in some of the states with the biggest jumps in REO sales. In Missouri and Michigan, average REO sales prices increased 13 percent from a year ago, while in Florida they were up 8 percent.
And the November foreclosure activity report issued today shows signs that more bank-owned inventory may be listed in the coming months. November REO activity increased 11 percent from the previous month and was up 5 percent from a year ago — the first annual increase in REO activity since October 2010.