Economy Watch: Foreclosed Properties Less Discounted Than Before

By Dees Stribling, Contributing Editor

Even in a healthy economy, foreclosed residential properties typically sell at a discount to non-foreclosed ones, but during the worst of the recession, when foreclosures flooded many markets around the country, the pricing difference between the two was especially pronounced. According to a report by Zillow on Friday, however, the difference isn’t what it used to be, which can be taken as another sign of the improving health of the U.S. residential market.

The report takes the approach of trying to answer the question, “How much can I save by buying a foreclosure?” Nationally, the (bank-owned) foreclosure discount is 7.7 percent as of September, down from 9.1 percent in September 2011. The recent peak in the foreclosure discount happened to be in September 2009, when the difference was 23.7 percent nationally.

Markets differ regarding foreclosure discounts. Metro Pittsburgh, for example, still has a discount of 27.4 percent, according to Zillow, down from its high of 35.3 percent in September 2009. A couple of major markets, Phoenix and Las Vegas, currently have no foreclosure discounts—that is, foreclosed properties trade, on average, for the same prices as non-foreclosed properties.

Short sale explosion in Vegas market

The Greater Las Vegas Association of Realtors reported on Friday that not that many houses are sold out of foreclosure in that market any more. Instead, 44.7 percent of all existing local homes sold during October were short sales, down slightly from a record 44.8 percent in September, but still up dramatically from 25.4 percent a year ago, notes the GLVAR. Continuing a trend of declining foreclosure sales in recent months, REO homes accounted for only 11.6 percent of all existing home sales in October, down from 13.6 percent in September.

Las Vegas is an important housing market because, as the hardest-hit market of the residential real estate crash, its recovery is something of a bellwether, too. The number of available homes listed for sale without any sort of pending or contingent offer increased compared with the previous month, according to the association. By the end of October, GLVAR reported 4,079 single-family homes listed without any sort of offer, which is up 3.4 percent from 3,943 such homes listed in September, but still down 60.6 percent from one year ago.

“The biggest thing in this month’s report is that the inventory of homes available for sale went up,” GLVAR President Kolleen Kelley explained in a press statement. “We sold fewer homes in October than we listed. As inventory goes up, you’re not going to see prices go up as much. It’s supply and demand.”

Consumer confidence edges up

American consumers were feeling a bit better in early November, with the preliminary Reuters/University of Michigan consumer sentiment index for the month increasing to 84.9 from its October reading of 82.6. The index, though not terrifically high, is at its highest level since July 2007, before the recession that started in December of that year, and before the 2008 financial panic.

The last time consumer sentiment saw a sharp decline was in the summer of 2011, when the country faced another sort of fiscal cliff, namely the quarrel over raising the debt ceiling. So it’s possible that consumers will start feeling grumpier again if the perception of inaction on the current fiscal cliff also grows.

Wall Street had an up day on Friday, perhaps because of murmurs from Congress that a fiscal cliff compromise might, just possibly, be in the cards by the end of the year. But it wasn’t much of an up day: the Dow Jones Industrial Average gained 4.07 points, or a scant 0.03 percent. The S&P 500 was up 0.17 percent and the Nasdaq advanced 0.32 percent.