A study of the top 26 foreclosure markets revealed that foreclosure inventories are equal to 77 percent of MLS listings. In "bubble markets" with volatile prices, foreclosure inventories represent up to 89% of listings. Looking at the same 26 markets its estimated that foreclosure inventories alone represent between a 14.4 and 34.7-month supply of housing. The National Association of Realtors estimates that foreclosure and short sales represented 45 percent of existing-home transactions during the fourth quarter. As a result of the current economic climate, all indications are that its going to take a long time for this discounted inventory to clear, even with foreclosures representing a growing percentage of transactions.
Scoring Foreclosure Property Deals: Short sales are a new trend
As foreclosure inventory continues to grow, banks are becoming more and more interested in pursuing short sales. The largest banks and thrifts are substantially increasing their short sale activity. From Q3 2008 to Q4 2008 short sale transactions were up 61 percent. Short-sale property discounts ranging from 10 percent to 20 percent. Clearly, lenders want to recover as much of the mortgage amount as possible, but selling at a discount in this range typically still saves them money versus letting the home fall into foreclosure.
Insights from the Mortgage Bankers National Servicing Show
It was clear at the show that most servicers are expecting a significant influx of REOs in Q2 and Q3 as moratoriums begin to lift. With the large inventory levels, asset managers are applauding REO agents that are using any differentiating approach toward actively marketing their REO listings. We are seeing that loan modifications programs are rapidly expanding. Banks are proactively looking at their default portfolios and segregating loans into those that qualify for a loan modification, those that are likely candidates for short sale and those where foreclosure appears to be the only course of action for recovery. With this new shift, asset managers are expanding their business by getting into the business of processing short sales. We expect that this will bring new efficiency to the short sale process and likely a reduction in the typical length of time it takes to close these transactions."