Last year proved to be an interesting time for the real estate world. Home sales began to increase, along with home values and buyer demand, while foreclosure rates started dropping and inventory slimmed down. The end of 2012 brought forth new hope for a strong market, and for the first time since the start of the housing crisis, the dreaded shadow inventory of distressed homes was kept at bay. All of this was due in large part to the major boom in short sales. Short sales are homes offered at a discount in order to avoid foreclosure. The seller and the mortgage lender agree to a discounted price, usually because the seller has one or more financial hardships (unemployment, death of a spouse, etc.).
According to data from RealtyTrac, which tracks foreclosure rates across the U.S., there were three times as many short sales as there were foreclosure sales in 2012. Foreclosures only accounted for 11 percent of all sales, which was down from 13 percent in 2011. Meanwhile, short sales rose 5 percent year-over-year, accounting for 32 percent of all home sales.
Daren Blomquist, spokesman for RealtyTrac, expressed his opinions on the recent shift in a February article from CNNMoney. He remarked that while there has been a favorable decline in the “most disruptive sales,” i.e. bank-owned foreclosures, there are still a lot of distressed sales.
Short sales are typically regarded to be more beneficial to banks than foreclosures, as they usually sell for a lower discount. During the fourth quarter of 2012, the average discount for foreclosures was 39 percent while the average discount for short sales was 23 percent. By agreeing to a short sale, banks could, theoretically, take a less substantial loss. [Read more...]