Hyped ‘Foreclosure Wave’ Took Different Path

December 31, 2012

The anticipated “great foreclosure wave of 2012” that was expected to unleash a huge surge of up to 1 million foreclosures onto the market failed to materialize. Instead, the number of short sales spiked this year, possibly offsetting that wave and softening the blow to the housing market. 

Short sales of homes not in foreclosure rose 15 percent in the third quarter over the previous quarter and were up 17 percent compared to year ago levels, according to RealtyTrac data. 

Distressed sales still made up a high number of the market share at 41 percent of the share in residential sales in the third quarter. But the biggest bulk of those sales weren’t from REOs, as originally forecasted.

Short sales accounted for about 22 percent of all sales during the third quarter. Meanwhile, pre-foreclosure sales made up nearly 10 percent, as did REO sales. 

When faced with a distressed home owner, banks started to favor short sales over foreclosures this year, realizing that the foreclosure price discount is a much bigger loss than from short sales (20 percent compared to 14 percent, according to National Association of REALTORS® data). 

Some banks even launched incentive programs to get more home owners to sell short rather than foreclose. For example, some distressed home owners were offered cash incentives of tens of thousands of dollars if they agreed to a short sale. 

Source: “Expected Foreclosure Wave Weakened by Short Sale Rip Current,” Forbes (Dec. 27, 2012)