Short sales are up due to the foreclosure rates dropping. Now you wonder how this affects the real estate market.
Well, before we get into that, some back ground: Short sales happen when a lender agrees to sell a home for less than it the mortgage is worth. In this case the lender forgives the difference and the borrower is no longer responsible for the home they cannot afford. The short sale process is becoming more efficient, which is both good news for lenders and borrowers. This streamlined process is much more organized making turn around quick; typically homes spend more than a year to finalize when being foreclosed on.
Lenders are making a strong effort in considering short sales as an alternative to foreclosure. According to Bloomberg, large banks including, JP Morgan, Chase and Wells Fargo—started to give away cash to borrowers for agreeing to do a short sale instead of falling into foreclosure.
Similar to foreclosure, short sale can bruise home prices. The experts at the National Association of realtors (NAR), short sales normally sell for 17percent below the market according to February’s numbers. This is a huge price cut, but less than the average 22 percent for foreclosure sales.
Assuming that short sales typically pick up more money for the lender, it would be safe to assume that short sales would be another valuable option of unloading distressed homes. It is important to note that short sales don’t add to the bank-owned homes (REO’s) supply, the houses don’t sit on the market long and the impact on home prices is not as substantial as that of a foreclosure.
Although foreclosures have typically surpassed short sales in terms of volume, that trend is changing. Bloomberg just reported the most recent data available which indicates that short sales exceeded foreclosure sales for the first time in January of 2012 by 4.2 percent.
If short sales continue to streamline their way past foreclosure it could mean that home prices will hit bottom by the end of 2012. Over time, we will see less homes going through foreclosure, which would decrease home prices dramatically. At best, this uptick in short sales will help avoid foreclosures a road that no homeowner wants to go down.
If you are a struggling homeowner and have questions about loan modifications or to find out if you qualify contact The Mortgage Law Group.
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