Bank Owned Home Discounts to Grow Even Bigger?

Foreclosures are expected to pick-up as soon as banks begin to clear their backlog of troubled loans. RealtyTrac is projecting a 25 percent increase in foreclosures in 2012.

If an increase does occur, some housing experts wonder how it will impact overall home prices and whether the discounts for REOs will be even larger this time around.

For example, in metro areas like Las Vegas, the average foreclosure sells at 6.1 percent less than a non-foreclosure home. In Miami, the foreclosure discount is 7.1 percent, according to data by LPS Applied Analytics. In some places, it’s even more.

“A spike in sales of bank-owned homes can be bad news for other sellers,” The Wall Street Journal reports. “And foreclosure sales make it hard for prices to rise overall since they boost sales activity at the lower end of the market.”

This time around, however, housing experts don’t expect the discounts in distressed properties to grow.

“More often than not, prices are determined more by demand than supply,” Paul Dales, senior U.S. economist at Capital Economics, told The Wall Street Journal. Areas with a high number of REOs may have greater demand for REOs in good condition and less supply for other properties. Plus, Capital Economics predicts that demand will improve nationwide this year as the housing markets starts to recover.

Source: “Will the ‘Foreclosure Discount’ Grow This Year?” The Wall Street Journal (March 14, 2012)