Distressed Properties on the Move

In his 2010 letter to shareholders, Warren Buffett predicted that “within a year or so residential housing problems should largely be behind us” and that “for every seller (or lender) hurt by [declines in home value] there will be a buyer who benefits”.  Buffett believed the healing would start in earnest as excess housing supply is absorbed.  We are starting to see signs that the excess supply is indeed being absorbed, as distressed property sales increased substantially in February, the fourth consecutive monthly increase. More and more borrowers are taking advantage of low current interest rates, low home prices, and the first time home-buyer tax credit to purchase homes at relative bargain prices.

According to the February 2010 Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions sales of distressed properties made up 48.1% of all home sales in February,  up from 37.3% the previous month.  There are three broad categories of distressed properties, short sales, damaged Real Estate Owned (REO) and move-in ready REO.  Sales of all three types increased in February, with short sales making up 17.1% of all home sales, followed by move-in REOs at 16.6%, and damaged REOs at 14.4%.

Short sales are the favored method for moving distressed properties. Generally a short sale leaves a property in better physical condition and allows the lender to recoup more of their original investment than foreclosure or other methods of selling REOs.

The increase in short sales is attributed in part to the first time home-buyer tax credit.  First time home-buyers constituted 42.9% of distressed property sales in February, a 4% increase from the January.  Short sales are attractive to first time home-buyers because of their relatively low cost.  Further, it often takes several months to complete a short sale, which presents difficulties for current homeowners who generally have to sell their current house before purchasing a new one.

Home prices in all categories, distressed or not, dipped from January to February.  This is due in part to the increased supply of distressed properties on the market.

Whether you are a first time home-buyer looking to take advantage or the tax credit, or a current home owner looking for a bargain, or a handyman looking for a property to renovate, we can help.  Call one of our mortgage experts at 877-868-2503.  Begin your future today.