Processing delays have taken their toll on first-time homebuyer interest in short sales, which now account for more than one of every six house sales, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
First-time homebuyer purchases of short sales dropped to 39.7 percent of short sale transactions in August. That represented a three-month slide and was the lowest level for first-time homebuyers ever recorded by the HousingPulse survey.
The first-time homebuyer share of short sales hit a peak of 54.1 percent of all short sale transactions in November 2009, just before the originally-scheduled expiration of the federal homebuyer tax credit.
Short sale transactions have long been problematic for buyers and sellers alike, with typical approval times of several months after a homebuyer first submits an offer. Factors slowing down short sale approvals include lost paperwork, coordination with multiple investors, slow appraisals, and mortgage servicer understaffing.
Still, for many first-time homebuyers, average short sale prices of 27 percent lower than non-distressed properties compensated for the wait time. But with average time-on-market for short sales stalled at 16.6 weeks-with the majority of that time spent waiting for short sale approval-short sale transactions are becoming less popular with first-time homebuyers.
Short sales are just one type of distressed property, with damaged REO and move-in ready REO also being significant components of today’s housing market. In August 2011, short sales accounted for 17.1 percent of the home purchase market, with damaged REO and move-in ready REO accounting for 13.2 percent and 15.6 percent, respectively.
The total proportion of distressed property, as represented by the HousingPulse Distressed Property Index (DPI), fell to 45.9 percent in August from 46.2 percent in June.
Real estate agents responding to the August survey indicated that homebuyers frustrated with short sale delays are resorting to placing offers on multiple properties, with the intention on closing on only one. This practice can bog down the short sale approval process at mortgage servicers.
The state of California is a hotbed of short sale activity, with these sales accounting for 31 percent of home purchases in the month of August. Numerous California real estate agents provided comments about short sales for the survey. “Short sales buyers/investors were generally looking at several properties and if one already had 1st and 2nd approval, buyers would move towards the property that had a better chance of closing sooner. They would get tired of waiting on the short sale process,” commented one agent.
“I feel that selling agents are telling the buyers it’s okay to write multiple offers because they can walk away with no risk, especially on short sales,” reported another agent. “The short sale market is fraught with deceit and corruption. First-time home buyers are hardly in the game when they try to purchase a short sale listing,” added a third agent.
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.