The elimination of the federal home buyer tax credit and the foreclosure documentation issue put a lid on fourth quarter 2010 foreclosure sales, but for the full year, foreclosure sales accounted for 26% of all US sales of residential property. That’s slightly better than the 29% total in 2009, but also slightly worse than the 23% in 2008.

All told 831,574 properties were sold through foreclosure in 2010, a drop of 31% from 2009 and 14% less than 2008, according to a report from online foreclosure tracker RealtyTrac. The report also noted that non-foreclosure sales fell 19% in 2010 from 2009 levels, and fell 27% from 2008 levels.

To make a bad situation worse, selling prices also fell. The average selling price in 2010 for bank-owned properties was discounted 36%, higher than the average discount of 33% in 2009. In the fourth quarter the average discount was 37%.

Sale of properties in pre-foreclosure — that is, in default or scheduled for auction — were down 30% year-over-year, and sold for an average discount of 15%, somewhat better than the 17% discount in 2009.

The hardest hit states were Nevada, Arizona, and California. In Nevada, foreclosure sales accounted for 57% of all sales. That’s awful, but not as bad as the 67% rate of 2009. Arizona foreclosure sales accounted for 49% of all sales, and California foreclosure sales accounted for 44% of all sales.

Discounts were above 35% in 10 states, with Ohio leading the dreary pack with an average discount of 43%, followed by Kentucky with an average discount of 40%. The other states where foreclosure sales were heavily discounted were Tennessee, California, Pennsylvania, Illinois, New Jersey, Michigan, Georgia, and Wisconsin.

Of the reported states, the number of foreclosures were lowest in Montana, Alaska, Delaware, New Hampshire, and New Mexico. The average foreclosure discount was positive in just one state, Montana, where sale prices averaged 3.08% above foreclosure value.

While the overall trend in the report is slightly positive, the number of foreclosure sales remains very high, and the discounts on the sales prices remains stuck at around 35%. As we noted in our story on housing recovery, there are currently about 2 million bank-owned houses in the US and about 11 million underwater mortgages.

The Obama administration is pushing a plan that would have mortgage servicers write-down the value of underwater mortgages, without penalty to purchasers of mortgage-backed securities. Banks, not the federal government, would pay for the write-downs, which could reach a total of more than $20 billion. All this would do is clear out some of the worst loans, but that is an important first step in cleaning up the devastation caused by the burst housing bubble.

Paul Ausick

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