The fallout from rising foreclosures and discounted REOs has not been as bad as anticipated, according to a new study.
First American Real Estate Solutions announced it investigated the increasing prevalence of foreclosure sales and the depth of discounts in 705 counties in 43 states, including the District of Columbia.
While it was found that foreclosure prevalence and discounts to sell lender-repossessed properties have been rising, the trend remains "a ripple that has not become the tidal wave some expected would overwhelm the market," First American said.
When analyzing the correlation between foreclosures as a percentage of total sales and the size of the discount buyers typically receive when purchasing foreclosure properties, the discount was deeper where foreclosures were more prevalent, according to the study, A Ripple, Not a Tidal Wave: Foreclosure Prevalence and Foreclosure Discount.
For example, in Orange County, Calif., foreclosure sales represented 0.5 percent of total sales during the first half of 2006 and the median discount was 3.8 percent whereas Baltimore, Md., foreclosures accounted for 8.9 percent of sales for the same time frame and the median discount was 20.0 percent, the statement said.
The study reportedly also found a strong tendency toward increased foreclosure prevalence and deeper discounting for properties in the lower price tiers within their markets.
"The prevalence of foreclosures and the depth of discounts can be correlated," said Christopher Cagan, First American director of research and analytics and author of the study, in the announcement. "Discounts tend to be deeper in markets where foreclosures comprise eight percent or more of all sales, regardless of geographic location or market type."
Areas with few foreclosure sales and little or no foreclosure discounts during the year's first half included Arizona, Nevada and Virginia, First American reported. Meanwhile, foreclosures were more prevalent and discounts deeper in Colorado, Missouri, Michigan, Ohio and Pennsylvania.
"Foreclosure rates and discounts are key factors that impact real estate transactions and the performance of mortgage investments," said George Livermore, a First American president, in the announcement. "By closely monitoring and analyzing patterns of default nationwide, we help our clients refine their insight into risks and opportunities as they emerge."