The nation turned a corner since entering a foreclosure crisis more than four years ago, analysts attending the 2013 REOCON Summit & Expo said Monday.
Speaker Daren Blomquist, vice president of RealtyTrac, elaborated on 2012 short sale and REO trends when speaking to Realtors attending the conference in Dallas.
Blomquist assured the crowd, saying "Our data does show that we're past the [foreclosure] peak." He then went on to reveal some startling statistics in regards to REO activity. More than 10 million REO starts and nearly 5 million REO completions occurred between 2006 and 2012.
After the robo-signing controversy came to light in late 2010, the number of foreclosures in the U.S. began its downward trajectory in the first quarter of 2011. Meanwhile, the industry is beginning to see a stronger surge of short sales as REO properties slowly dissipate.
So what is causing this increase in pre-foreclosed properties? Many states are coming off artificial lows from last year thanks to foreclosure processing delays and banks are more frustrated by homes that are hitting the foreclosed status.
In some states, such as New York, the amount of time it takes to complete a foreclosure after it's been taken by the bank is borderline unbelievable, according to Blomquist. The average number of days it takes in New York to complete a foreclosure is 1,089 days from the time the bank forecloses. The national average is 414 days.
"This is evidence that these markets are just taking longer to absorb the foreclosures," Blomquist noted.
As a result of this lagging completion time, Blomquist believes there will be more distressed homeowners interested in listing their homes as short sales in the next six to 12 months in these markets.
In many markets, this may already be happening. Pre-foreclosure sales (short sales) increased 22% in Q3 of 2012, reaching the highest level since Q2 2011.
Click on the image below to see the distressed sales share documented by RealtyTrac.
Because of this ample supply of short sales, the average price of a short sale home dropped 5% in Q3 year-over-year.
California, Florida, Arizona, Michigan, Colorado and Nevada all saw more short sales than REO sales, according to RealtyTrac’s latest data.
Additionally, 31 states posted annual increases in non-foreclosure short sales in the third quarter of 2012.
While all evidence seems to be pointing towards short sales as the latest and greatest, Blomquist reminded the crowd that REOs are not dead just yet.
The fact is that, while banks are preferring short sales to REOs with all things being equal, not all properties can be sold via short sale.
"There are signs that some of these foreclosure start increases that we are seeing are starting to transfer into REOs," Blomquist added.
In fact, in some states, REOs are beginning to bounce back already. North Carolina, Connecticut, Illinois, Mississippi and Florida are all seeing a rebound of REO sales.
"One of the things those states have in common is a very short foreclosure process," said Blomquist.
Because of this dip in foreclosure inventory recently, the average sales price of an REO property rose 7% year-over-year in the third quarter of 2012.
"There’s still plenty of delinquencies out there that are coming down the pipeline," added Blomquist.
According to RealtyTrac reports, assuming no additional properties come onto the market, there is currently a 20-month supply of bank-owned REOs. "Even if we didn’t have any more properties starting the foreclosure process, we’d still have 1.5 million properties in the waiting pool," said Blomquist.
"It’s good to be aware of what you’re dealing with in your market," Blomquist concluded.