The housing market has struggled to rebuild since its 2007 collapse, and its recovery is on even shakier ground now that a tax credit for first-time homebuyers has expired.
Nearly one-third of all U.S. home sales in the first quarter involved properties that were in some stage of mortgage distress, according to RealtyTrac Inc.. And homes on the market that were in the process of foreclosure sold at an average discount of 27% in the first quarter, which does not bode well for new inventory coming onto the market.
"We're clearly creating more properties that will be sold at distressed prices than the market is absorbing," Rick Sharga, RealtyTrac's senior vice president for marketing, told Bloomberg News in an interview. "The discount will probably stay between 25% and 30% as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market."
A total of 232,959 homes sold in the first three months of the year had received a default or auction notice or were seized by banks, and there were more than 250,000 new bank seizures in the first quarter.
Home foreclosures set a record for the second straight month in May with increases in every state, as lenders stepped up property seizures. Bank repossessions climbed 44% from a year earlier and will probably set a record in the second quarter.
Bank-owned properties sold for an average 34% discount in the first quarter, up from 32% both in the previous quarter and a year earlier. REO's, as such properties are known, accounted for 19% of all U.S. home sales, up from almost 16% in the fourth quarter and down from 21% in the first quarter of 2009, RealtyTrac data show.
Distressed sales totaled more than 1.2 million in 2009, up 25% from 2008 and more than four-fold over 2007. Distressed property accounted for 29% of all sales last year, up from 23% in 2008 and 6% in 2007.
A "normal" market would show foreclosures accounting for less than 2% of sales, Sharga said.
Nevada had the highest proportion of distressed sales of any U.S. state, with 64% of all transactions involving properties in mortgage distress. California ranked second, with such sales accounting for 51% of all sales and Arizona was third at 50%.
Meanwhile, Congress so far has failed to approve an extension on the $8,000 tax credit for first-time homebuyers. The U.S. House of Representatives on Tuesday awarded extra time to hundreds of thousands who were trying to secure the credit, but passage in the Senate is still uncertain – despite the fact that Senate Democrats introduced a similar bill Tuesday.
The House passed by a vote of 409-5 a measure to extend the closing deadline to Sept. 30 for buyers who already met the April 30 deadline to have a signed contract.
Real estate agents say thousands of purchases may not be completed by Wednesday because settlement offices are slammed with buyers trying to close on transactions in order to receive the funds. Many are trying to take advantage of short sales, which are complicated deals to complete.
"Up to 180,000 homebuyers will now receive the tax credit they deserve, and our housing market will be strengthened as a result," House Speaker Nancy Pelosi said in a prepared statement after the lower chamber approved the measure.
Majority Leader Sen. Harry Reid, D-NV, said the measure "should be passed swiftly."
Even so, an extension would represent the end of the line for Congressional moves to breathe life into the moribund housing market. Mortgage applications plummeted 40% after the deadline to apply for the tax credit expired at the end of April, signaling buying activity could remain muted for the rest of the year.
At this point, it's hard to envision how the market can execute a turnaround anytime soon.
Unemployment continues to hover around 10% and over 6 million Americans lost jobs in the Great Recession.
About 7 million homeowners are behind on their mortgages, and that number is on the rise. The delinquency rate for mortgage loans on residential properties increased to 14% of all loans outstanding in the first three months of the year, according to the Mortgage Bankers Association (MBA).
Foreclosures are expected to climb to 4.5 million this year from 2.8 million in 2009, according to RealtyTrac.
"Ultimately, you're going to need job growth to see a sustainable recovery in housing," Scott Brown, chief economist at Raymond James & Assoc. Inc. (NYSE: RJF) in St. Petersburg, Florida, told Bloomberg.
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