Discount for foreclosed homes widened in 2010

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LOS ANGELES - The gap between the average sale price of a foreclosed home and that of other properties grew wider last year, giving homebuyers who snapped up bank-owned homes big discounts.

And homebuyers can expect to see more of those bargains this year, because fewer foreclosed homes were sold in 2010 than were taken back by banks, foreclosure listing firm RealtyTrac Inc. said Thursday.

Buyers who purchased a foreclosed home last year got, on average, a 28 percent discount to a non-foreclosure sale. That's up from a 27 percent average discount in 2009, RealtyTrac said.

While only a slight increase, the trend suggests a widening price spread between foreclosure sales and other types of residential properties.

Foreclosed homes made up nearly 26 percent of all home sales last year, according to RealtyTrac. That's down from 29 percent in 2009 but up from 23 percent in 2008.

Traditionally, foreclosures account for less than 10 percent of all home sales.

In all, 831,574 foreclosed properties were sold last year, including those in some stage of foreclosure but not yet taken back by lenders, the firm said.

That's down 31 percent from 2009 and down nearly 14 percent from 2008.

Sales of homes outside of the foreclosure process declined nearly 19 percent in 2010 from the prior year, according to RealtyTrac.

While the pace of foreclosure sales slowed, lenders stepped up their home repossessions, taking back more than 1 million homes last year.

That deepened the so-called shadow inventory of foreclosed homes that have yet to hit the market. Experts contend that the housing market won't fully recover until banks find buyers for those properties.

"We need to clear out the inventory if the market is going to come back," Rick Sharga, a senior vice president at RealtyTrac.

Banks are reluctant to put too many foreclosed homes on the market at once, because they would face booking sizeable losses on the sales.

Generally, about 30 percent of banks' foreclosure inventory is on the market, Sharga said.

More foreclosure sales, however, would almost certainly send overall home values lower in many markets, because foreclosed homes often sell at a sharp discount to other properties.

Already, housing experts predict home prices will slide another 5 percent this year.

"You could have a scenario where housing prices could be pushed lower," Sharga said.

Foreclosure sales, like home sales overall, fell sharply in the last three months of the year. Government tax credits earlier in 2010 helped gin up home sales, but pulled forward transactions that would have typically occurred later in the year.

Lenders' efforts to deal with foreclosure documentation problems and heightened scrutiny in states where courts play a role in the foreclosure process also dampened sales of bank-owned homes.

That slowdown began to ease in December, however, and foreclosure sales spiked 21 percent, the firm said.

Nevada, Arizona and California had the highest percentage of foreclosure sales last year.

Nevada led the nation with foreclosure sales accounting for nearly 57 percent of all home sales, RealtyTrac said. That was down from 67 percent the year before.

Several other states had foreclosure sales that accounted for at least one quarter of all home sales last year: Florida, Michigan, Georgia, Idaho, Oregon, Illinois, Virginia and Colorado.

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