Q3 Foreclosure Sales Volume Plunges As Discount On Foreclosed Homes Hits 5 Year High

RealtyTrac has just reported that even though the volume of foreclosed homes plunged by 25% from Q2 to Q3 and 31% from Q2 of 2009, the discount on foreclosed homes has hit a five year high, as interest in even ultra bargain properties has collapsed following the expiration of the homebuyer tax credit, and confirming yesterday's bad Case Shiller (remember that one?) number. Per RealtyTrac: "foreclosure homes accounted for 25 percent of all U.S. residential sales in the third quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process — up from a 26 percent discount in the previous quarter and a 29 percent discount in the third quarter of 2009." Yet despite the major price drop, buying interest has evaporated as nobody there is no longer any purchasing power left in the lower and middle sections of the housing market: "a total of 188,748 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the third quarter, a decrease of 25 percent from the previous quarter and a decrease of nearly 31 percent from the third quarter of 2009. The average sales price of properties in some stage of foreclosure was $169,523, down 2.46 percent from the previous quarter and down 0.44 percent from the third quarter of 2009." And while the average price of non-foreclosed homes posted a slight uptick in Q3, the volume drop was even worse: "The average sales price of properties not in foreclosure was $249,721, up 6.42 percent from the previous quarter and up 4.36 percent from the third quarter of 2009. Sales volume of non-foreclosure properties decreased 29 percent from the previous quarter and nearly 31 percent from the third quarter of 2009."

More from RealtyTrac's Jim Saccacio:

“The expiration of the homebuyer tax credit in the second quarter created a substantial dip in overall buyer demand in the third quarter,” said James J. Saccacio, chief executive officer of RealtyTrac. “Demand for foreclosures also dipped in the third quarter, but those who did purchase a short sale or REO during the quarter were able to get an average discount of more than 32 percent — the highest average foreclosure discount we’ve seen since the fourth quarter of 2005.”

“The foreclosure-processing controversy, which was brought to light at the very end of the third quarter, could chill demand even further — particularly for foreclosure properties,” Saccacio continued. “A quick but responsible resolution to that issue would be ideal to help the market continue to properly clear out foreclosure inventory and get distressed properties into the hands of qualified buyers and investors who will likely add value to those properties and the neighborhoods they are in.”

We hope that Jim Cramer, who predicted that fraudclosure would lead to higher prices, reads the bolded text above, as it confirms once again that the bald comedian may need to retake Econ 101, where while they will not teach you how to manipulate stock prices, one may actually learn about the consequence of dropping demand on equilibrium price.

And some more details from RealtyTrac:

Foreclosure sales by type

A total of 113,933 bank-owned (REO) properties sold to third parties in the third quarter, down nearly 26 percent from the previous quarter and down nearly 35 percent from the third quarter of 2009. REO sales accounted for 15 percent of all sales in the third quarter, the same as the previous quarter and slightly below the 16 percent of all sales reported in the third quarter of 2009. REOs sold for an average discount of nearly 41 percent, up from an average discount of 34 percent in the previous quarter and an average discount of nearly 35 percent in the third quarter of 2009.

A total of 74,815 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the third quarter, down nearly 24 percent from the previous quarter and down 24 percent from the third quarter of 2009. Pre-foreclosure sales accounted for nearly 10 percent of all sales, up slightly from 9 percent in the previous quarter and 9 percent in the third quarter of 2009. Pre-foreclosure sales, which are often short sales, sold for an average discount of 19 percent, up from an average discount of nearly 13 percent in the previous quarter and an average discount of 18 percent in the third quarter of 2009.