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A quarter of homes sold in 2010 were foreclosures – good news?

According to RealtyTrac.com’s 2010 Year-End Foreclosure Sales Report, nearly 26 percent of all homes sold during the year were foreclosures, up three percent from 2008 and down three percent from 2009. The average sales price of foreclosures in 2010 was 28% less than non-foreclosure home. California, Nevada and Arizona lead with the highest percentage of foreclosure sales nationally.

“Foreclosure sales in the fourth quarter faced the twin headwinds of the expired homebuyer tax credit — which began to stifle sales volume during the third quarter — and the foreclosure documentation controversy, which hit in the fourth quarter and temporarily froze sales of foreclosures from several major lenders,” said James J. Saccacio, CEO of RealtyTrac.

Traditional media is proclaiming that with a quarter of all sales being foreclosures, the weakness in the market is evident, but we would argue that 26% of all sales in the year being foreclosures (discounted or not) means some of the glut in foreclosure inventory is being snatched up and hopefully some buyers now have some equity rather than the other end of the spectrum of buyers that are upside down the minute they set foot in their home.

We anticipate that foreclosure and short sales will continue to perform well as buyers become more aware of the process and the tales of success outnumber the inevitable horror stories. Existing homes suffer from a poorly performing foreclosure market if inventory sits still and drives down values, so healthy sales (although difficult to compare to existing home sales when buyers are shopping) are good for the overall housing sector. It should also be noted that given a rise over the years of foreclosure sales, perhaps the shadow inventory isn’t quite as scary?

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