Banks proactive in selling distressed properties (© moodboard/Corbis)

U.S. banks are agreeing to more short sales and pricing distressed properties more aggressively to get them off their books, according to new data from foreclosure tracking firm RealtyTrac.

“This is the first piece of positive news in the housing market for quite some time,” says Rick Sharga, RealtyTrac senior vice president. “It has benefits for current owners who can avoid a foreclosure proceeding; lenders who lose less money on a short sale than a foreclosure; and buyers who get a property below market rate that’s in reasonably good condition.”

A total of 102,407 pre-foreclosure homes — those in default or scheduled for auction — were sold to third parties in the second quarter, a 19% increase from the first quarter, and a 12% decrease from the same quarter last year, when a housing tax credit was still boosting overall sales.

Short-sale surge
Some of the states with the biggest quarterly increases in pre-foreclosure sales — often sold in a short sale for less than the value of the loan — include: Nevada with a 43% increase; Washington with a 39% increase; California with a 38% increase; and Texas with a 34% increase.

These sales help preserve property values, since pre-foreclosures typically sell for more than so-called REOs or vacant bank-owned property. But it’s still good news for buyers, as banks are now agreeing to slightly bigger discounts on these short-sale properties.

The average sales price for a pre-foreclosure or short sale in the second quarter was $192,129. That's 21% less than the average traditional listing, compared with a 17% discount in the first quarter, and a 14% discount at the same time last year.

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It’s less time-consuming and costly for banks to accept a short sale, Sharga says, especially in so-called judicial foreclosure states such as New York, where foreclosures are handled through the courts and can take up to three years to resolve.

Bank-owned properties are becoming a better bargain as well. The average price for a bank-owned home was $145,211 in the second quarter, a discount of nearly 40% from the average non-foreclosure property; that's a bigger discount than both the 36% discount in the first quarter and 34% discount in the second quarter of last year.

Thinning the shadow inventory
Of course, these sales represent just a fraction of the distressed properties on the market that continue to depress home prices.

A recent report released by Standard & Poor’s Rating Service estimates that it will take 47 months to clear the $405 billion in distressed homes on the market. That’s down five months from S&P’s first-quarter estimate and its peak. It also represents the largest quarter-to-quarter drop since mid-2008.

“Web believe these are positive signs that the amount of time it will take to clear this ‘shadow inventory’ should continue to decline over the next year,” the agency said in its report.

And it will take an emptying of this pipeline for values to improve in any meaningful way, analysts say.

‘The sooner we clear these out, the sooner home prices will come back,” Sharga says.

Foreclosure sales
Sales of property in some stage of foreclosure — from notice of default to bank-owned — slid to 31% of all U.S. home sales in the second quarter, down from nearly 36% in the first quarter, but up from 24% last year.

Despite this increase in share from a year ago, sales of real estate in some stage of foreclosure actually decreased in number from a year ago when sales were more robust with the housing tax credit still in place. A total of 265,087 foreclosure or bank-owned homes were sold in the second quarter, up 6% from the first quarter and down 11% from the same period last year.

State by state
The states with the highest number of foreclosure sales were:

  • Nevada, where 65% of all residential sales in the second quarter were foreclosure-related. Third parties purchased 15,685 of these homes during the quarter, up 24% from the first quarter and 31% from the same period in 2010.
  • Arizona’s foreclosure-related sales increased 16% from the first quarter and 16% on an annual basis. The 25,756 foreclosure-related sales made up 57% of all sales in the state during the second quarter.
  • California’s 69,897 foreclosure-related sales represented 51% of all residential sales in the quarter; that's a 12% jump from the first quarter, but is virtually unchanged from the same time last year.
  • Other states where foreclosure properties accounted for more than 30% of all sales include: Michigan (41%), Georgia (38%), Colorado (36%), Florida (35%), Illinois (34%), Oregon (33%) and Idaho (30%).

Best bargains
The biggest foreclosure discount could be found in Louisville, Ky., where the average foreclosure sales price of $85,211 represented a 54% discount from the average sales price of non-foreclosure homes.

Similarly, the Sebastian-Vero Beach, area of Florida posted an average foreclosure-related sales price of $97,175, a 53% discount. Saginaw, Mich. reporting an average foreclosure sales price of $48,977, also a 53% discount.

Other metro areas with a foreclosure discount of 50% or more were Milwaukee (51%), Pittsburgh (51%), and Kalamazoo, Mich. (50%).

State-by-state foreclosure report for Q2 2011

State# of FC Sales% change from Q1 11% change from Q2 10Pct. of All SalesAvg FC Sales PriceAvg FC Discount %Avg Pre-FC Discount %
Alabama1,229-1.68-14.7724.22$122,52026.6224.08
Alaska25227.92-1011.95$241,84111.1716.47
Arizona25,75615.7816.0756.64$123,61831.5726.05
Arkansas98910.87-18.6718.67$114,42125.9720.81
California69,89712.12-0.2551.31$242,25743.3235.95
Colorado8,0443.515.2335.9$170,31733.6130.03
Delaware47632.5924.9322.08$147,74141.5733.84
Florida34,558-4.96-22.4735.06$114,89433.425.75
Georgia10,48516.89-15.6238.42$118,99937.333.03
Hawaii7434.54.2121.41$347,42823.7516.22
Idaho2,0538-12.1529.59$138,86418.8916.12
Illinois9,3555.79-11.6134.01$129,94943.6224.44
Indiana2,367-18.13-48.7618.73$99,86332.7936.93
Iowa96930.0721.139.39$94,64032.6822.94
Kentucky9167.51-30.8216.49$91,29847.6732.76
Louisiana93013.55-3.9314.77$121,50634.1223.84
Maine912.25-47.47.8$160,45118.1316.83
Maryland3,8661.82-25.5723.47$178,61542.3236.11
Michigan11,668-1.97-22.1540.61$70,76540.1713.74
Minnesota3,1470.25-17.2724.93$139,58526.499.22
Mississippi994.21-41.769.45$145,33120.6939.22
Missouri3,8899.06-0.5923.03$98,55036.5943.19
Montana26516.2325.5910.13$185,1668.0219.91
Nebraska124-46.32-42.334.58$124,50120.3516.92
Nevada15,68523.8630.7165.43$121,85222.0218.03
New Hampshire3240.62-50.3810.88$155,19336.8228.55
New Jersey2,377-24.94-46.4214.96$206,85443.0431.41
New Mexico6087.61-1412.94$171,38515.2121.18
New York1,838-14.51-42.658.35$278,85234.924.34
North Carolina3,320-4.05-32.1113.92$148,77327.4515.7
Ohio6,868-0.2-28.5523.71$76,95044.1829.1
Oklahoma1,1930.76-5.2414.25$97,44135.3927.26
Oregon3,3124.38-11.0633.41$166,55030.4323.45
Pennsylvania3,7073.52-3.8114.3$114,42340.4428.46
South Carolina2,433-7.03-17.3321.24$137,29029.4820.22
Tennessee3,8385.18-27.9419.18$98,41541.1639.24
Texas11,51712.87-9.7114.01$129,58534.9135.03
Utah2,1415.31-34.7926.85$199,0634.456.02
Virginia5,131-4.58-24.126.11$209,72639.9929.83
Washington5,38420.7222.6125.27$200,49230.422.76
Wisconsin2,286-4.75-9.4323.85$101,75141.6831.88
Wyoming17531.5896.6313.76$138,54734.37N/A
U.S. Total265,0876.48-11.0731.32$164,21732.0620.51

Source: RealtyTrac