This month's LPS Home Price Index report from Lender Processing Services is just the latest in a list of recent marketplace findings that suggest short sales, the preferred option for defaulting homeowners seeking to avoid the stigma of foreclosure, have truly come of age.
"Banks are getting about the same price on both short sales and foreclosure sales in areas that have high levels of distressed transaction. Clearly the mortgage industry has made significant efforts to put distressed properties through the short sale process as an alternative to foreclosure," reported Raj Dosaj, vice president of LPS Applied Analytics.
Short sales have been a relatively large part of total home sales volume after the bubble, said LPS. The lack of proper accounting for short sales has exaggerated their effect on all the major home price indices, including the LPS HPI, until now. LPS computes its HPI exclusively from differences in prices that homeowners pay on their initial purchases and what they later receive when they sell.
In February, RealtyTrac reported that it saw a similar shift toward short sales and away from REO sales in the fourth quarter of 2011.
"Nationally, pre-foreclosure sales increased 15 percent from a year ago while REO sales decreased 12 percent. Pre-foreclosure sales outnumbered REO sales in several bellwether markets, including Los Angeles, Miami and Phoenix, where REO sales had outnumbered pre-foreclosure sales a year ago. That trend will likely show up in more local markets in 2012 as lenders recognize short sales as a better option for many of their non-performing loans." Brandon Moore, chief executive officer of RealtyTrac.
The HousingPulse survey from Campbell Surveys and Inside Mortgage Finance found that the total share of distressed properties in the housing market in February, as represented by the HousingPulse Distressed Property Index (DPI), continued to climb, reaching a near-record of 48.7 percent, using a three-month moving average, and all of the growth in the distressed property share of the housing market over the past six months has been driven by an increase in short sales. Over the past six months, the proportion of short sale transactions in the market has climbed from 17.0 percent to 19.8 percent.
Investors continued to boost their activity in the housing market during the month of February, according to the HousingPulse Tracking Survey. Short sales have become a new target for investors now that other homebuyers have lost their enthusiasm for these popular but often lengthy and unpredictable transactions. The investor share of short sales likewise grew from 25.9 percent to 30.6 percent during the same six-month period. In contrast, the proportions of first-time homebuyers and current homeowners purchasing short sales have dropped since September. Investors find short sales more attractive because they do not have to deal with the complications of breaking rental leases or moving from another home on short notice, the survey said.
In its survey of real estate agents, the HousingPulse found that mortgage servicers have been using "cash-for-keys" payments to motivate delinquent homeowners to engage in short sales. Cash-for-keys payments are often $3,000 or 1 percent of home value, but can reach up to $25,000 and more for high value homes in areas with long foreclosure timelines, HousingPulse respondents reported. "The typical amount offered to homeowners with 'cash for keys' is $3,000. Approximately 1/3 of my short sale transactions are qualified for the cash for keys program," commented a real estate agent in Virginia. "Short sales are definitely motivated by cash for keys. Typically they are receiving $3,000-5,000 on homes between $300k to $500k. I have seen $15,000 on $1 million homes," added an agent in California.