The housing sector was the beneficiary of increasing property values in 2013. In fact, CoreLogic has already released a report acknowledging that 23 states are now within 10 percent of their home price peaks. The return to pre-bubble values is highlighted by a 12.5 percent year-over-year increase in home prices. However, the gains have been increasingly beneficial to banks and institutional lenders as well. The steep jump in home prices has allowed banks to sell their repossessed properties at a faster pace.
Due largely in part to the value of homes increasing so dramatically, sales of bank-owned homes accounted for 10 percent of all property sales in November. The increase is encouraging to say the least, as it is up almost an entire percentage point from the previous month. The news represents the third consecutive month in which bank-owned sales increased.
“Lenders are taking advantage of this environment to unload more of their bank-owned inventory and in-foreclosure inventory at the foreclosure auction,” said RealtyTrac’s Daren Blomquist in a release.
“But as the backlog of distressed inventory available dries up in many of the markets with the most efficient foreclosure processes—namely California, Arizona and Nevada, with Georgia not far behind—overall sales volume is declining and will continue to do so until more non-distressed sellers enter the market.”
Evolving market conditions saw institutional investors search for alternative real estate exit strategies once distressed properties became harder to come by. Not only were bank-owned properties elusive, but bidding wars made it increasingly difficult to acquire the ones that were available. It appears, however, that investors have revived their interest.
Collectively, institutional investors made up 7.7 percent of bank-owned property purchases in November. That number was up from 6.3 percent in the previous year. Increased investor activity may be attributed to slowing price gains and more inventory.
“We have seen an uptick in REO offerings, which is a little surprising for this time of the year,” said Rick Sharga, executive vice president at Auction.com.
Sharga said his company, which auctions off properties online, got 3,000 REOs last week that had never been marketed before. “We are seeing more properties sold at trustee sales, and we are seeing more properties that are coming from servicers priced to sell at trustee sales.”
In the past, mortgage servicers frequently tried to sell foreclosed properties for the full value of the respective loan amount. However, doing so usually resulted in the property staying with the back, as investors were looking for bigger discounts. Ironically, the recent home value increases have forced servicers to discount properties. As a result, investor activity has risen. At the same time, all-cash offers are becoming more predominant. RealtyTrac has acknowledged that all-cash offers may make up as much as 42 percent of distressed sales, the highest rate since 2011.