Nearly Half of Sales Now Distressed Properties


Sales of distressed properties rose to 48.6 percent in March - the second highest level seen in the past 12 months, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

The monthly survey of more than 3,000 real estate agents nationwide each month also found that demand among both current and first-time buyers declined slightly and among investors was nearly flat on a month-to-month basis as the spring real estate market kicked off.

Agents provided opinions on traffic. “January, February and March sales were characterized by a wait and see attitude of buyers. Both investors and first time homebuyers are fearful of what is going on nationally with Washington, D.C. Both the gas prices and the weather influenced the local market.” stated an agent in California.

“Our market bottomed out last year and started to rise slowly. 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,”  reported an agent in Colorado.

A significant number of respondents commented on the problems that the high proportion of distressed properties is causing for the appraisal system. When many properties are distressed, it is often difficult for appraisers to find recently sold non-distressed properties to gauge value.

 ”Home values continue to decline, making normal sale homes worth much less than they should be. Appraisers continue to use distressed property sales to establish value on non-distressed listings. Further, these same appraisers will not make any adjustments for amenities, (pools, spas, solar, etc.), when compiling a normal sale vs. distressed comps. 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% 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,” complained an agent in Arizona.

 In a positive sign, short sales boomed in the month of March and the proportion of damaged bank-owned properties fell. Short sales rose from 17.0 percent in February to a record-high 19.6 percent in March. Damaged REO fell from 14.9 percent in February to 12.0 percent in March. Because damaged REO has the worst effect on comparables used for appraisals, smaller amounts of damaged REO should affect appraisals less in future months.

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