Foreclosed Home Sales are One Bright Spot in this Poor Housing Market

During the last quarter, despite an overall decline in home sales, sales of homes in default or scheduled for auction climbed 6.5%. A total of 265,087 homes in some stage of foreclosure or owned by banks were sold during the quarter ending June 30, up from a revised 248,959 in the first quarter.

Overall home sales declined 11.1% in the second quarter from the year-earlier period, though the second quarter of 2010 was marked by increased sales as the homebuyer tax credit neared expiration. In the most recent quarter, sales of homes in the pre-foreclosure stage rose 19% from the previous quarter, though they were still down 12.4% from the year earlier. Rick Sharga, senior vice president at RealtyTrac, says the quarter-over-quarter rise is “the first good news we’ve seen in this part of the housing market in quite some time.”

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Selling homes in the pre-foreclosure stage “allows the borrower to exit without a foreclosure, it gets a homebuyer into a property at a discount that’s probably in better condition than a bank-owned property (NYSE:XLF), and it allows the bank to lose less money ultimately on the transaction,” said Sharga. So while pre-foreclosure sales climbed, sales of bank-owned homes declined slightly, from 162,900 in the first quarter to 162,680 in the second.

Pre-foreclosure sales accounted for 12.1% of all home sales in the most recent quarter, with total distressed sales accounting for 31.3% of all sales. Bank-owned sales accounted for 19.2% of the market. While the total number of distressed sales declined quarter-over-quarter, from 35.5% to 31.3%, they climbed from the year-earlier period, when they made up only 24.4% of total sales.

But with so many distressed homes on the real estate market (NYSE:IYR), there are now more choices for buyers, in many instances cheaper than buyers would normally be able to afford. The average sales price on distressed homes fell last quarter from $165,272 to $164,217, and was down nearly 5% from the previous year. The average distressed home price was 32% below the average sales price of homes not facing foreclosure.