REOs and Short Sales Over 40% of All Home Sales in 2012

[Corey Dutton]

As reported by RealtyTrac, foreclosures (also called REOs) and short sales, accounted for 43% of all home sales in 2012. “Distressed sales are still a disproportionately high portion of the overall housing market,” as reported by the V.P. of RealtyTrac, Daren Blomquist.

Another finding from the RealtyTrac report, is that increases in the prices on distressed properties are narrowing the margins that real estate investors can make on distressed purchases. “And while distressed properties are still selling at a significant discount, average distressed property prices are increasing in many markets thanks to strong demand and limited inventory,” said Blomquist.

A good deal of the demand has been pushed by hedge funds with the intent to convert the single-family homes into rental properties. Not to mention the flood of foreign buyers like Canadians that have shrunk inventory and pushed up prices paid for distressed properties. This has been very frustrating for U.S. real estate investors that are looking to make a buck on the spread between what they can buy a distressed property for and then resell later once repaired.

Because many borrowers are unable to qualify for bank loans against distressed, vacant investment properties, a private money loan is a good alternative to a bank loan for real estate investors.

[Account Closed]

Originally posted by Jeff S:

I know several areas in L.A. where experienced investors are now purchasing properties for what they sold comparable homes a year. Can you spell bubble?
Jeff

I think Jeff S. is describing a good indicator of a possible bubble, one that I've been ignoring until now, but one that any experienced street level investor can recognize if they choose to. I usually buy directly from sellers with distresses that make it difficult or impossible for them to list their properties. That sometimes gives me the false impression that I am immune to bubble fever when making my offers to purchase. I think my offer is based on what I believe today's value to be, I know the repair costs, holding costs, yadayadayada. It's false because in practice I'll go higher on my offers if I think I'm re-selling to hungry, frenzied and irrational buyers. Or my offer will have thin margins just to get it under contract, but in the back of my mind I'm banking/betting on 60-90 days of appreciation. All of this compacted into a year....

Good call Jeff.