Distressed Homes Sold at 28% Discount Last Year With `Bloated' U.S. Supply

Homes in the foreclosure process sold at an average 28 percent discount last year and may continue to drive down U.S. housing prices as the supply of distressed properties grows, according to RealtyTrac Inc.

A total of 831,574 homes that sold in 2010 had received notices of default, auction or repossession, the Irvine, California-based data seller said today in a statement. Properties in distress accounted for almost 26 percent of all home sales last year, down from 29 percent in 2009.

A “bloated supply of foreclosures and weak demand from homebuyers” are depressing the market, James J. Saccacio, RealtyTrac’s chief executive officer, said in the statement. Residential real-estate prices dropped 4.1 percent in the fourth quarter from a year a earlier, according to the S&P/Case-Shiller index of home values in 20 cities.

“While accelerating foreclosure sales will help clear the oversupply of distressed properties and return balance to the market in the long run, in the short term a high percentage of foreclosure sales will continue to weigh down home prices,” Saccacio said.

Foreclosure filings may rise 20 percent to a peak this year as unemployment remains high and banks resume seizing property after a slowdown to investigate documentation procedures, the company said Jan. 13.

Distressed properties sold at a discount of 27 percent in 2009 and 22 percent the previous year, according to RealtyTrac. The discount reflects the sales price of homes in the foreclosure process compared with those not in distress, the company said.

Foreclosure Sale Price

The average foreclosure sale in 2010 was $172,030, up from $170,775 in 2009 and down from $200,708 in 2008, Daren Blomquist, a RealtyTrac spokesman, said in an e-mail.

Sales of previously owned homes in the U.S. rose in January to the highest level in eight months as investors used all-cash transactions to snap up distressed properties, according to figures from the National Association of Realtors released yesterday. The share represented by foreclosures and short sales climbed to a 12-month high, pushing the median price to the lowest level in almost nine years.

Bank-owned properties sold for an average discount of 36 percent last year, up from 33 percent in 2009, RealtyTrac said. Such homes accounted for 16 percent of all U.S. sales, compared with almost 18 percent in 2009 and 13 percent in 2008. Residences in default or scheduled for auction sold for a discount of 15 percent, down from almost 17 percent in 2009.

Highest Distressed Sales

Nevada had the highest proportion of distressed sales of any U.S. state, with 57 percent of its residential transactions involving homes seized by banks or at risk of foreclosure. Arizona ranked second at 49 percent, and California was third at 44 percent.

Distressed sales accounted for at least a quarter of residential transactions in Florida, Michigan, Georgia, Idaho, Oregon, Illinois, Virginia and Colorado, RealtyTrac said.

Ohio had the highest average price discount for foreclosed homes at almost 43 percent, followed by Kentucky at 40 percent. Tennessee, California, Pennsylvania, Illinois, New Jersey, Michigan, Georgia and Wisconsin all had average distress discounts of at least 35 percent, RealtyTrac said.

The company sells default data from more than 2,200 counties representing 90 percent of the U.S. population.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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