Short Sales of Real Estate Increase Sharply

 |  Includes: IYR, RWX
by: Kimball Corson

There was a big jump in real estate short sales in January. A short sale is one made by a lender on a foreclosed or repossessed parcel of real estate, typically a house, at a price below the balance due on the property. This is a big adjustment, on average, but one needed to induce buyers to undertake the risk of further declines in real estate prices and lenders to get the properties off their books.

Typically or on average, the sales prices these days are running about 91% of the balances due. This is a good sign that lenders are getting realistic. An extension of the first time homeowner’s tax credit is also helping here.

According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions,

Short sales accounted for a substantial 15.9% of home purchase transactions in January. This was well above the share of other distressed property activity – damaged real estate owned or REO (13.4%) and move-in ready REO (13.8%) – and represented a big jump for short sales.

“Short sales activity took a temporary dip in November around the expected expiration of the first-time homebuyer tax credit,” reported Thomas Popik, research director for the Campbell/Inside Mortgage Finance survey. “Few first-time homebuyers wanted to take the chance that their short sale transaction wouldn’t be approved by the November 30 deadline. But now that the tax credit has been extended, we see first-time homebuyers once again snapping up attractively priced short sales.”

Short sales of homes are expected to increase sharply in 2010.

Disclosure: None relevant