Bank Owned Foreclosure Dominate Home Sales

by Peter Vernon on States

The increase in the number of pending and completed sales in Florida brought new hope to the housing market in the state despite the fact that majority of closed sales were bank owned foreclosure.

Pending sales posed a significant increase in April, prompting industry experts to hope for a rise in sales in coming months. According to the National Association of Realtors, the number of pending home sales in April was the highest jump since 2001.

In the real estate industry, the increase in pending home sales is an indication that the housing market is stirring from its three-year slumber.

MFR Inc. chief economist Joshua Shapiro pointed out that the significant increase in pending home sales in April may mean that existing property sales are ready to take off in the coming months.

However, local mortgage brokers and economists cautioned against reading too much from the rise of pending and completed home sales, considering that many closed deals were made on bank owned foreclosure.

Tom Flood of Covent Mortgage said that almost 90 percent of his closing sales involved short sales. Short sales are deals wherein a lender agrees to the selling of distressed properties at below the original amount owed by the homeowner. He pointed out that 20 percent of these deals never pushed through.

He explained that a large volume of pending sales may not be good to the market. A healthy pending sales failure should not be more than 5 percent, according to Flood.

Seasonally adjusted data of sales contracts released by the National Association of Realtors for April showed that pendings surged by 90.3 percent from 6.7 percent, exceeding the forecasts of market analysts. The increase is the highest since October 2001, which posted a 9.2 rise in pending sales.

Meanwhile, economists who were surveyed by Thomson Reuters said that they expected the figures to increase from 84.6 to 85 in March. The increase was partly attributed to the $8,000 tax credit given by the Obama Administration to entice first-time homebuyers to make bank owned foreclosure purchase.

National Association of Realtors chief economist Lawrence Yun cautioned the industry over the volatility of pending home sales data. He said that with short selling dominating most bank owned foreclosure buying transactions, there is a big possibility that deals could breakdown before they close.