Distressed sales on the decline

Foreclosures and short sales (distressed properties), terms that have dominated the news headlines for the past five years, are beginning to take a back seat to improving market conditions, producing a greater degree of optimism for the future of this area’s existing home market.

Transactions are up, prices are improving in many areas, mortgage rates remain at extremely affordable levels and, best of all, distressed property levels continue to dwindle.

Through March of this year distressed sales in the two-county area accounted for only 46.5 percent of existing home sales, down from 53.9 percent in 2012 and a high of 68.8 percent in 2010. Although I’d like to see the percentage of distressed properties account for only a third of all sales this year, in all likelihood that number will be more like 40-50 percent. Since the beginning of April, distressed properties accounted for 73.2 percent of the 7,925 pending sales in Orange and Seminole counties. The good news is distressed properties accounted for just 25.5 percent of the 4,384 active listings in the two-county area, which is very encouraging.

While many first-time buyers and investors have been quick to take advantage of the affordable prices of distressed properties and low mortgage interest rates, all buyers need to be aware that when dealing with distressed properties banks require a limited time (normally seven to 15 days) in which to make inspections, and normally require an “as-is” contract for both bank-owned and short sale properties.

Even though distressed property inventory is on the decline, we still have a long way to go and won’t be out of the woods until distressed sales drop below five percent, a level we haven’t seen since 2007 when distressed sales accounted for only three percent of all existing home sales. The following two years, distressed sales began their upward climb, accounting for 27 percent and 59.2 percent respectively, of all existing home sales.

It is very conceivable distressed properties will not continue to be a factor in the market as they have been over the past five years and we’ll one day again see the distressed sale levels of .1 and .5 percent that existed in 2005 and 2006, respectively. In reality, the past five years have actually been an anomaly with regard to the high percentage of distressed properties on the market.

There is no question that market conditions are currently headed in the right direction and the goal of getting distressed sales below the five percent level will be achieved in the not too distant future. When that happens, headlines focusing on foreclosures and short sales will be a thing of the past.

Scott Hillman is president of Fannie Hillman + Associates. He can be reached at 407-644-1234 or [email protected]