16% of Residential Purchases Last Year Were Distressed Properties

Mortgage & Real Estate

Despite new foreclosure activity dropping to a seven-year low last year, distressed properties continue to play a vital role for the housing recovery as the rate in which these assets were sold on a yearly basis rose.   

Short sales, bank-owned sales and public foreclosure auction purchases accounted for 16.2% of all U.S. residential sales in 2013, according to RealtyTrac. This figure is up from 14.5% of all sales in 2012 and is higher than the 15.2% mark seen during 2011.   

“While short sales did trend lower in the second half of the year, there are still more than 1.2 million properties in the foreclosure process or bank-owned, providing a sizable pool of inventory that the housing market is in the process of absorbing,” says Daren Blomquist, vice president at RealtyTrac. “Meanwhile, nondistressed sellers have not listed their homes for sale in droves, helping to keep the distressed share of sales at a stubbornly high level.

More than 436,000 REO properties sold in 2013, which made up 9.3% of the 16.2% distressed sales total. The highest percentage of bank-owned sales in December took place in Nevada with 18.9%, followed by Michigan at 18.4%, Ohio was 17.8%, Arizona with 15.7% and Illinois tallied 14.7%.

Meanwhile, 5.8% of all U.S. residential sales—single-family homes, condominiums and townhomes—were short sales. Over 256,000 short sales occurred in 2013, the Irvine, Calif.-based analytic provider reported. The 2013 percentage is up from 4.9% the previous year, but down from 6% two years ago.  

Notable states where short sales were most prominent during December included Nevada, Florida, Illinois, Maryland, New Jersey and Michigan.   

Lastly, third-party investors bought 48,000 properties at foreclosure auction throughout 2013. This accounted for 1% of all U.S. residential sales, a slight increase from the .5% mark seen the prior two years.

For all of 2013, 29% of residential transactions were all-cash purchases, while institutional investor acquisitions (entities that bought at least 10 properties in a year) accounted for 7.3% of these types of sales.

Both figures have seen substantial rises since 2011, with cash sales going up from 19.4% in 2012 and 20.6% in 2011, while investor purchases increased from 5.8% in 2012 and 5.1% in 2011.

States where cash sales comprised at least 50% of all residential sales in December included Florida (62.5%), Wisconsin (59.8%), Alabama (55.7%), South Carolina (51.3%), and Georgia (51.3%).       

Even though more distressed properties are being bought on the open market, the median price these assets are selling for is not high. Most foreclosure or REO housing units were selling for approximately $108,494 in December, 38% below the median price of $174,401 for a nondistressed residential property.   

“The new Dodd-Frank legislation defining qualified mortgages is definitely going to influence sales in the first quarter because fewer people are going to be able to qualify for loans, which results in fewer buyers in the market,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, covering the Oklahoma City and Tulsa, Okla., markets. “Interest rates are higher, mortgage insurance is also increasing and the decrease in REO inventory will result in fewer investor sales, which all add up to a slower first quarter.”

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