Short Sales Will Outnumber REOs in 2010

GSIG LLC

According to a survey conducted by Campbell / Inside Mortgage Finance (IMF) of more than 1,500 real estate agents, short sales accounted for 15.9% of home purchases in January. This surpasses the share of distressed property activity when real estate owned (REO) properties are measured separately. The purchases taken up by short sales surpassed the move-in-ready REO purchases (13.8%) and damaged REO (13.4%).

As recent as November 2009, short sales accounted for 12.4% of purchases, while move-in-ready REO took 12.6% and damaged REO took 12.3%, according to the Campbell/IMF survey. These figures show a reversal from a fresh trend of distressed sales across these categories.

The January survey also showed first-time homebuyers most often purchased short sales. This trend can be attributed to the fact first-time homebuyers tend to only have one sale and closing time line to work around, whereas existing homeowners often have to sell a current residence at the same time.

Thomas Popik, research director for the Campbell/IMF survey states:

“Short sales activity took a temporary dip in November around the expected expiration of the first-time homebuyer tax credit. Few first-time homebuyers wanted to take the chance that their short sale transaction wouldn’t be approved by the November 30 deadline. But now that the tax credit has been extended, we see first-time homebuyers once again snapping up attractively priced short sales.”

Cary Sternberg, Excellen REO president, recently warned the public of the risks involved with short sales. He stated that short sales are likely to be the choice of borrowers deeply upside-down on their mortgages — however, these sellers will likely not be able to become buyers again for two to seven years because of their credit score as well as their record of a short sale. This elimination of home buyers may lead to a greater supply of homes for sale, which could pressure prices further over time. Sternberg concludes: “2010 is looking to be the year of the short sale!”


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