Foreclosures Are About 25% Of Q2 Home Sales

Foreclosed home sales were 24% of all transactions in the second quarter of 2010. The average price of a foreclosed home that was sold was 26% below comparable homes not in foreclosure. These data were presented by real estate research firm RealtyTrac in a new report.

The firm estimated that banks will take over 1.2 million homes this year, up from 1 million last year.

The numbers were slightly better than in the first quarter when one in three homes sold had been foreclosed on and the discount in price to home not in foreclosure was 27%.

The data are another warning that the housing market may not recover for years. Home sales may pick up due to inventories of low priced homes. Foreclosed properties sold at deep discounts will make it extremely difficult for people to sell their homes at reasonable prices, particularly in regions where banks have seized large numbers of properties.

The RealtyTrac data also indicate that the number of mortgages that are underwater is likely to grow from the present 11.5 million level. About a quarter of all home loans in the US has a greater value than the house that they were used to purchase. A drop in home prices due to foreclosure sales will likely drive prices even lower, an almost certain way to drop more home values below their loan balances.

People with underwater mortgages are more likely to default on their mortgages according to most research on the matter. Owners see no chance of making money when they eventually do sell their homes and may actually have to pay their banks as they go through the process of the sale.

The flat spiral that is the home market in the US is likely to accelerate. Unemployment, which was a primary cause of high foreclosure rates may be matched by another cause–banks that sell foreclosed inventory at below market prices threaten their mortgage clients by devaluing the prices of the houses on which they make monthly payments.

Douglas A. McIntyre