Builders will need to continue to be especially careful about how much they spend for land and how they price their homes, according to data released Thursday by RealtyTrac. In the third quarter, properties in some stage of foreclosure sold for an average of 32% less than the average sales price for non-distressed properties, which is a greater discount than the previous quarter.
In fact, “that’s the highest average foreclosure discount we’ve seen since the fourth quarter of 2005,” said James J. Saccacio, CEO of Irvine, Calif.-based RealtyTrac.
Distressed sales continue to represent a significant slice of the housing market, although their share is shrinking. Foreclosures accounted for 25% of all U.S. residential sales in the third quarter of 2010, which is down from the previous quarter and the same period one year ago. But the sales volume of non distressed properties also fell, decreasing 29% from the previous quarter and nearly 31% from the third quarter of 2009, according to RealtyTrac data.
“What we’re getting a glimpse of in the third quarter is what the market is like without the home buyer tax credit,” said Daren Blomquist, RealtyTrac’s director of marketing communications. “Buyer demand is not very strong out there.”
Once again, Nevada led the nation with 54% of distressed sales in the third quarter, with Arizona and California again taking second- and third-place, with 47% and 40%, respectively. (See chart below.) Iowa, Montana and New York reported the lowest percentages of foreclosure sales in the third quarter, with 6%, 7%, and 7%, respectively.
In terms of price discounts on distressed properties, bargain hunters were best served in the third quarter in Ohio, Kentucky, and Tennessee, where price breaks on such homes ranged between 45% (Ohio) and 42% (Tennessee), with Kentucky (44%) in the middle. Other states with average foreclosure discounts of more than 40% were Illinois, New Jersey, Michigan, Pennsylvania, and Georgia.
Surprisingly, while Nevada, Arizona, California posted the highest percentage age of foreclosure sales, they were not necessarily suited for bargain hunters looking for deep discounts. The price break on a distressed sale in Nevada was 19% in the third quarter, with a 25% discount in Arizona and 39% in California. “It seems like in some areas prices in recent months have at least stabilized, if not gone up slightly,” Blomquist said.
He also pointed out a trend worth noting regarding foreclosure buyers. “The two types of buyers we’re seeing most are cash investors and first-time home buyers. You see both flippers and buy-and-hold investors,” he said. “Today’s flipper is more of a legitimate investor, as opposed to during the boom market where people would buy and sell a house in a day or two and not add any value to the house.”
Matthew Phair is a freelancer in New York.
Learn more about markets featured in this article: Los Angeles, CA.