The Real Deal New York

Distressed home discounts hit five-year high

The city's foreclosed homes go for an average of 34 percent off in third quarter
By Sarabeth Sanders | December 01, 2010 06:30PM

Pretty much across the board, U.S. home sales took a third-quarter dive in the wake of the homebuyer tax credit’s expiration. According to the latest data from foreclosure-tracking firm RealtyTrac, sales of distressed residential properties were no exception to that trend, and as buyer demand dropped, discounts became more plentiful.

Nationwide, those who bought homes in some stage of the foreclosure process in July, August and September — that is to say, 25 percent of all U.S. homebuyers — paid an average of 32 percent less than did those who bought homes with healthy financials. That’s the biggest foreclosure discount seen since 2005, said RealtyTrac CEO James Saccacio.

Although foreclosure sales make up less than 8 percent of the homebuying marketplace in New York City, the area logged similar trends to the rest of the country last quarter. Sales of foreclosed residences here dropped by 12 percent since the second quarter and by 28 percent since last year at this time, the RealtyTrac third-quarter report, which was released today, says. The discount on a distressed home in the city was around 34 percent, on average, such properties went for $393,326.

But New York is distinct in that pre-foreclosure sales — usually, short sales — are outpacing sales of bank-owned, or REO, homes. Across the five boroughs, around 6 percent of all home sales were pre-foreclosures last quarter, while less than 2 percent were REOs. Compare that with the nationwide third-quarter tally, in which REOs took a 15 percent share of home sales to pre-foreclosures’ 10 percent.

Daren Blomquist, a spokesperson for RealtyTrac, said he believes the difference may lie in New York State’s unusually long foreclosure process. “That extra time may be allowing for short sales to occur,” he said. “In that sense, the more drawn-out judicial process could be a benefit [for the market].”

But we should expect some upheaval in the data when RealtyTrac comes out with its fourth-quarter sales report, which will reflect the consequences of the foreclosure paperwork scandal that surfaced at the very end of last quarter and led many of the nation’s biggest lenders to freeze foreclosures, Blomquist said.

“Buyers are probably a little more wary about purchasing a foreclosure [property] if there’s some risk that a foreclosure was not done properly,” he said.

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