Foreclosure Freezes Come on Heels of Rise in Distressed Sales: Report

The proportion of foreclosure and other distressed property sales continued to climb in September, according to a report released this week by ""Campbell Surveys."":http://campbellsurveys.com/housingreport/housing1.htm

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The company says the new data suggests that any significant delay in foreclosures resulting from the recent legal controversy surrounding paperwork accuracy could have major repercussions for the housing market in the coming months.

The September results pointed to two disturbing but related trends. One, a growing share of home sale transactions involve distressed properties, namely REOs and short sales. And two, demand from first-time homebuyers, who have been the most active purchasers of distressed properties, is already beginning to wane.

Distressed properties as a share of total home purchase transactions hit 47.5 percent in September, according to Campbell's latest survey.

That's up from 45.7 percent reported by the company in August and 44.8 percent in September of 2009.

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Campbell Surveys says damaged REO saw one of the sharpest rises as a share of all transactions â€" going from 13.6 percent in August to 14.7 percent in September.

While the inventory of distressed properties held by banks is expected to grow because of the recent foreclosure stoppages related to documentation reviews, the share of distressed property sales will likely drop as a result.

One real estate agent responding to the September survey reported, ""Banks have halted sales on many foreclosed homes, but not all. Three of my potential closings were halted until further notice.""

""Bank freeze on closings will cause a lot of problems as 80 percent of [my] sales are REO sales,"" added another agent responding to the survey.

The decline in first-time homebuyers is not surprising given the end of the federal tax credit in late spring. Since early summer, Campbell's monthly survey on real estate market conditions has seen the percentage of first-time homebuyers drop from 42.4 percent in June to just 34.4 percent in September.

""For much of 2009 and early 2010, the proportion of first-time buyers followed the proportion of distressed properties,"" commented Thomas Popik, research director for Campbell Surveys. ""Current homeowners sell a home when they buy a home, resulting in no net take-up. Likewise, many investors buy, rehab, and sell, providing no take-up. In contrast, first-time homebuyers absorb excess housing stock. However, in recent months, they have been able to play this role less frequently because of restricted financing.""

Campbell surveys more than 3,000 real estate agents nationwide each month to gauge market conditions and provide insight on home sales and mortgage patterns.