- Short Sales and Foreclosures - a Brief Overview

In April of 2008 the NATIONAL ASSOCIATION OF REALTORS® conducted an on-line survey of members on issues related to the credit crunch, foreclosures, and short sales. We obtained approximately 5,800 responses. Below is a summary of the results of that survey.

Short Sales
What is a short sale? A short sale is usually defined as a case in which a bank or other mortgage lender "discounts" the balance of the loan, usually due to a borrower's financial or other economic hardship. The property owner/borrower then sells the property at that lower price and the proceeds from the sale are turned over to the lender. Typically, short sales are done in order to prevent foreclosure.

In the NAR survey, REALTORS® indicated that overall 40 percent of their clients have been involved in a short sale. Of those REALTORS® participating in short sales, 55 percent reported that they had assisted buyers, and 45 percent had assisted sellers.

The top states in terms of the percentage of REALTORS® involved in short sales were

Nevada (65%)
Rhode Island (52%)
California (52%)
Florida (50%)
Arizona (47%)
The states with the lowest percentage of REALTORS® involved in short sales were:

Vermont (less than 1 percent)
Wyoming (11%) 
Mississippi (17%) 
Alaska (17%)
Delaware (18%).
Since short sales involve some write-down by the lender of the amount owed, the survey asked REALTORS® about the extent of write-downs. More than a quarter of respondents who participated in short sales - 26.7 percent - reported that short sales involved more than 20 percent debt forgiveness. A small percentage - 4.4 percent - reported short sales with less than five percent debt forgiveness.

Foreclosures
REALTORS® were also asked about the share of active listings in their market (or in their multiple listing service) were foreclosed properties. The median percentage of "foreclosure" listings was

six percent. But more than a third of respondents didn't know. In addition, some MLSs do not list foreclosed homes. Nearly 15 percent of REALTORS® indicated that one to five percent of their market listings were foreclosed properties.

Credit
In addition to asking survey participants about short sales and foreclosures, REALTORS® were also asked about recent availability of credit and what percent of their clientele were having challenges

in obtaining approval for mortgage loans. Well over a third of respondents indicated that all - or nearly all - of their their clients encountered no problems in getting a loan.

But there were differences in some states. Fully two thirds of participating REALTORS® from Alaska reported that their clients had no problems obtaining approval for a loan. Similar trends were reported in New Jersey (59%), Montana (48%), Wisconsin (47%), and the District of Columbia (46%).

Postponing the Homebuying Decision
Some potential homebuyers have been "on the fence" -- perhaps waiting for prices to dip further, for interest rates to decline, or for their personal financial/economic situations to improve. In a difficult housing market, it is sometimes challenging to determine the factors that are influencing a buyer's decision whether or not to purchase a home.

The survey asked REALTORS® if their recent clients had postponed the home buying decision. More than half indicated that their clients did actually purchase a property. But more than a fifth reported that buyers wanted to wait for home prices to decline even more before purchasing. Almost 8 percent said that buyers were unable to purchase a home because they needed to sell their current residence. A very small percentage of survey participants - 3.9 percent - reported that buyers postponed a home purchase for personal reasons.

Some Positive Signs for the Future
There is some good news on the home buying horizon. Recently released data from the Mortgage Bankers Association shows that mortgage purchase applications are up. The purchase portion of the MBA's Mortgage Applications Index* increased 6.4%, from 349.0 to 371.5 for the week ending September 5, 2008. That is a fourth consecutive weekly increase. Consecutive rises in mortgage applications signal that buyers are returning to the market, possibly at a moderate pace but still in numbers that can be measured. While it may take some time for consumers to absorb recent positive housing news, affordable home prices, the still historic low mortgage rates - and a large selection of existing inventory - are already attracting the fence sitters.