Saturday, October 9, 2010

Foreclosure freeze shakes battered home market

Home prices are likely to be firmer than otherwise would be the case in the fourth quarter and into early next year," said Mark Zandi, chief economist at Moody's Analytics.
While that's good news for the economy, the effects might be short lived. That's because the foreclosure freezes are also likely to delay sales of the huge inventory of foreclosed properties, which would hinder a long-term recovery in prices.
Freezing foreclosures? What does that mean?
Distressed sales through foreclosures or short sales now make up nearly a third of the residential real estate market, according to an estimate from home sales research firm RealtyTrac, which estimates they are depressing home prices by about 26%.
Are short sales now going to be the main way banks are going to liquidate their inventory of homes?

He thinks the freezes could cause lenders to move toward more short sales, in which the bank agrees to a sale for less than the balance of the mortgage. That could lead to a more substantial impact on market prices.
"It might stimulate a little more short sale activity, as lenders and servicers look for ways to more efficiently move the property outside the foreclosure," said Sharga. "Typically your discount on short sales is only 15%, compared to 35% for a [foreclosure sale]."

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