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Distressed property sales have eased since the housing market crash, but still represent a substantial proportion of California real estate sales. Despite the recent decline in short sales and foreclosure sales we highlighted in Part 1, distressed property sales will likely remain an important part of the California real estate landscape for the foreseeable future.
Let’s take a look at the California property market through the lens of distressed sales versus non-distressed sales. Surprisingly in 2012, despite the rapid decline in foreclosures, distressed sales still accounted for nearly 56 percent of all property sales. Compare that to January 2006, when less than 10 percent of property sales were distressed.
For this discussion sales represent sales of new and existing single-family residences and condominiums. Also, distressed sales represent both short sales and the resale of bank-owned (REO) properties, while all other market sales are considered non-distressed. Because properties sold at trustee sale are not considered market sales, we do not include those sales in our discussion.
The graph below illustrates annual trends of distressed sales vs. non-distressed sales from 2001 to date.
Source: PropertyRadar
The graph illustrates that as the housing crisis gathered steam, distressed sales began to increase as a percentage of total sales in 2006 and 2007 while non-distressed sales plummeted. The persistent severity of the housing crisis is evident from 2008 through 2011, when distressed sales exceeded 57% of non-distressed sales in all four years. Beginning in 2012, as the decline in foreclosures accelerated, distressed sales as a percentage of total sales fell. So far in 2013, distressed sales have declined as a percentage of sales but are still 50.3% of that total.
The primary driver behind the decline in distressed sales is the fall-off in REO sales, which reflects the drop in overall foreclosure activity. Foreclosures have declined because government interventions offer homeowners in default a dizzying array of programs ranging from loan modifications to outright debt forgiveness. As we highlighted in Part 1, both the California Homeowner’s Bill of Rights and the $25 billion National Mortgage Settlement significantly depressed foreclosures in 2012.
Another big driver of the 2012 decline in foreclosures was the ability of underwater homeowners to refinance their mortgages through changes in the Federal Government’s Home Affordable Refinance Program (HARP). According to the Federal Housing Finance Agency, 1.1 million underwater homeowners nationwide (including 159,343 Californians) received HARP loans in 2012.
In sum, distressed property sales — still over 50 percent of total sales — will likely remain an important component of real estate sales for some time to come. If distressed property sales in the 5 to 10 percent range represent a “normal” market, then the California real estate market still has a long way to go before returning to “normal.”
Part 1: Government interventions depress short sales and foreclosure sales since January 1
Madeline Schnapp
Director of Economic Research
530-550-8801 x27
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About Madeline Schnapp:
Madeline Schnapp brings more than 20 years of economic analysis and forecasting experience to ForeclosureRadar. Prior to joining ForeclosureRadar, Madeline was Director of MacroEconomic Research for TrimTabs Investment Research, Inc., a leading provider of financial research to the institutional investment community. While at TrimTabs, Ms. Schnapp was responsible for developing several proprietary real-time economic indicators to track employment, job demand, wages and salaries and disposable income well in advance of traditional government indicators. Prior to TrimTabs, Ms. Schnapp was Director of Market Research with O’Reilly Media, and pioneered the use of web spiders to track real-time economic activity in the information technology sector.
About PropertyRadar®:
PropertyRadar.com features unprecedented tools to search, manage, track and analyze pre-foreclosure, foreclosure auction, short sale and bank owned real estate. PropertyRadar has been serving its customers for nearly five years and counts several thousand investors, Realtors®, government agencies and other professionals among its subscribers. PropertyRadar has been cited as an authoritative source by Bloomberg, 60 Minutes, Wall Street Journal, Associated Press, and other leading media outlets. The company was launched in May 2007 by Sean O’Toole, who spent 15 years building and launching software companies before entering the foreclosure business in 2002. From 2002 to 2007, Sean O’Toole successfully bought and sold more than 150 foreclosure properties in California. PropertyRadar is privately held and based in the North Lake Tahoe Area.
