By Les Christie, February 24, 2011
NEW YORK (CNNMoney) — Home prices are down but sales are up, somewhat contradictory trends.
Home prices fell nearly 6% during the six months ended Dec. 31, sending values to their lowest levels in the post-bubble period, S&P/Case-Shiller reported on Tuesday. On Wednesday, the National Association of Realtors reported that sales of existing homes rose for the third straight month.
“At least it’s not a double whammy where both sales and prices are dropping,” said Stuart Hoffman, chief economist for PNC Financial Services Group. “Deals are getting done.”
That’s because 26% of all homes sold last year were foreclosures and short sales, according to a RealtyTrac report released on Thursday. That’s down slightly from 2009, but a jump compared to 2008.
Homes already foreclosed on and repossessed by banks, called REOs (real estate owned), sold for an average of 36% less than normal sales, RealtyTrac reported. Meanwhile, the discount for homes sold while they were still in the foreclosure process (short sales) was 15%.
“It’s like the post-holiday sales at Macy’s where they’re trying to clear out unwanted inventory,” said Anthony Sanders, a real estate professor at George Mason University.
Nevada had the highest percentage of distressed sales of any state at 57%. That was, however, less than 2009, when 67% of sales there were foreclosures. In Arizona, 49% of sales were distressed properties; in California, 44%; and in Florida, 36%.
Foreclosed properties sold for the biggest discount — 50% off — in New Jersey.
These homes have attracted bargain hunters, including individuals or groups looking to buy and hold properties, according to Hoffman. They hope to buy at such a good price that they can rent out the properties and make a profit.
“These folks are cash investors who are going in and offering very low bids,” he said.
NAR reported that all-cash sales went up to 32% of the total, up from 26% a year earlier. It estimated the percentage of investor purchases hit 23%, up from 17% a year ago.
“Unprecedented levels of all-cash purchases — primarily of distressed homes sold at deep discounts — undoubtedly pulls the median price downward,” said NAR president, Ron Phipps.
These investment opportunities are not going away. Nearly 30% of mortgage borrowers are underwater on their loans, owing more than their homes are worth, according to Stan Humphries, chief economist for Zillow, the real estate web site.
These owners are very vulnerable to foreclosure so the number of distressed properties that will go on sale only the next year or two will probably remained high.