An industry study released Monday shows that nearly half of home sales activity last month involved distressed properties, a trend that is likely to continue as the backlog of foreclosures and mortgage defaults make their way through the pipeline.
Within this distressed property segment, the market analysis shows a boom in short sales during the month of March to record-high levels and a drop in the proportion of damaged REO.
These deductions come from the HousingPulse Tracking Survey generated by Campbell Surveys and Inside Mortgage Finance.
The survey’s overall distressed property index rose to 48.6 percent in March – the second highest level seen in the past 12 months.
Short sales rose from 17.0 percent in February to a record-high 19.6 percent in March. Over the same period, damaged REO fell from 14.9 percent to 12.0 percent.
The report referred to both developments as “a positive sign” for the market.
Short sales can eliminate the sometimes long periods of time a home sits vacant after it is repossessed by the lender after foreclosure, and because damaged REO has the worst effect on comparables used for appraisals, smaller amounts of damaged REO should be a positive for home values in future months.
In another potentially significant – but not so positive – development, the monthly survey registered a slowdown in owner-occupant activity during March.
Activity among both current homeowners and first-time homebuyers declined just over half a percentage point from February to March, while investor activity was up only slightly.
Survey respondents reported mixed opinions on traffic for the winter and spring housing market.
“January, February, and March sales were characterized by a wait and see attitude of buyers,” stated an agent in California, noting that concern over the happenings in the nation’s Capitol, as well as economic influences on consumer finances such as gas prices, are impacting buyer demand.
“Our market bottomed out last year and started to rise slowly,” reported an agent in Colorado. “January was flat with activity and inventory. February saw more buyers coming out. March has seen a sharp increase of new listings, approximately double what we had in February. It appears that we should have a marked increase in activity as we continue in this strong season of the year.”
A large number of respondents commented on the problems the high proportion of distressed properties is causing for the appraisal system, noting that when so many properties are distressed, it is often difficult for appraisers to find recently sold non-distressed properties to gauge value.
“Appraisers continue to use distressed property sales to establish value on non-distressed listings,” complained an agent in Arizona. “Further, these same appraisers will not make any adjustments for amenities, (pools, spas, solar, etc.), when compiling a normal sale vs. distressed comps.”
The agent went on to explain, “I have had at least one appraiser tell me that his firm has been given marching orders to calculate the current value based on all properties sold within the last 3 to 6 months and only use the average square footage minus 10 percent to establish neighborhood value comps. If this is indeed standard practice, it will take a mighty long time to realize any increases in property values.”
The Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey polls more than 3,000 real estate agents nationwide each month to provide insight on home sales and mortgage usage patterns.