Foreclosure Discounts are Greatest in Midwest, Northeast

The average price of a foreclosure-related sale was only 29 percent below the average price of a non-foreclosure sale during the fourth quarter of 2011, down from a 34 percent foreclosure discount in the third quarter and a 35 percent foreclosure discount in the fourth quarter of 2010, according to RealtyTrac’s Q4 and Year End 2011 U.S. Foreclosure Sales Report.

Moreover, RealtyTrac’s data shows that fourth quarter foreclosure discounts were twice as great in some Midwestern and Northeastern markets as in Arizona, Florida and California markets better known for their foreclosure activity.

The precipitous drop may confirm research by several leading economists that many foreclosure-saturated markets are beginning to stabilize despite the backlog of properties in the foreclosure pipeline. Alex Villacorta, Clear Capital’s director of Research & Analytics, said the increased stability is occurring in the markets they have studied despite a backlog of foreclosures in the of properties in the foreclosure pipeline . In a study of Florida markets, Villacorta found modest improvement in distressed home sale prices across all price tiers and declining levels of distressed sales as a percentage of total sales. A recovery in the distressed segment, regardless of the magnitude, creates a resistance to downward movement across all price tiers.

“Some places, like many Florida markets, have bottomed out. Elsewhere, there are so many variables I don’t see foreclosures all hitting at once. Rather, it will be a flat economy with foreclosures siphoned into markets over an extended period of time,” Tom O’Grady, chief executive officer of Pro-Teck Valuation Services in Waltham, MA said recently.

The greatest REO discounts in the fourth quarter occurred in markets that also saw a year over year increase in foreclosures. They also occurred generally in the Midwest and Northeast. Not one of the top ten markets for foreclosure price discounts was in the “sand” states where foreclosures have been greatest. In fact, the market with the greatest discount was Milwaukee, where REO sales rose 14.47 percent during the year and the average discount was 57 percent in the fourth quarter. Second was Philadelphia, which experienced an 8.14 percent rise in REO sales and a 52.51 percent discount. In the Boston market, discounts reached 50.92 percent as REO sales grew 9.50 percent year over year. Chicago had a discount rate of 49.71 percent and a 23.17 increase in REO sales. Atlanta had a discount rate of 48.12 percent and an 11.77 increase in REOs.

Among states, Missouri had the greatest discount, at 67.83 percent, followed by Massachusetts at 52.44 percent, Rhode Island at 51.72 percent and Connecticut at 49.51 percent. By contrast, Arizona registered an average discount of only 23.14 percent, Florida has a discount rate of 30.62 percent and California had a rate of 43.46 percent.

REOs sold for an average of $149,686 in the fourth quarter, up 2 percent from the previous quarter but down 2 percent from the fourth quarter of 2010. The average sales price of a bank-owned home in the fourth quarter was 36 percent below the average sales price of a non-foreclosure home, while the discount on bank-owned homes for the entire year was 40 percent.