Purchases of foreclosed homes at auctions jumped last month as banks benefited from surging prices and shunned approvals of sales by homeowners dumping their dwellings at a loss.
In October, about 20% of repossessed properties sold at U.S. auctions compared with 15% in July, said Daren Blomquist, vice president of Irvine, California-based RealtyTrac. Auction deals accounted for 2.5% of all U.S. sales in October, almost doubling from a year earlier. Short sales, in which banks agree to accept less than is owed on the property, comprised 5.3% of purchases, falling from 11%, data company RealtyTrac said in a report today.
“Banks are starting to get the prices they want on the auction block so they’re less willing to lock in their losses with a short sale,” Blomquist said. Some homes are being sold for amounts that almost match the values of their defaulted loans. “That means banks are getting close to recouping some of their losses,” Blomquist said.
Investors, including hedge funds and private equity firms, which acquire the lion’s share of homes at auctions, have raised about $20 billion to purchase as many as 200,000 homes to rent. Their purchases are spurring a rebound in property prices after the housing bust shaved as much as 35% off real estate values nationally. The median home price gained 12.8% in October from a year ago, just shy of August’s 13.4% gain -- the highest since the peak of the property boom in 2005, the National Association of Realtors reported last week.
“Speculative demand is what’s driving the market,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “That’s giving banks the chance to get foreclosures off their books.”
Investors have emerged as major landlords in Atlanta, Las Vegas and Phoenix -- cities hit hardest by the housing meltdown, where property values plummeted by as much as 50%. Since then, rising demand for rentals has given investors annual returns similar to those produced by equity markets, said Frank Pallotta, managing partner at Loan Value Group, a mortgage consulting firm in Rumson, New Jersey.
Stringent mortgage standards, a legacy from the financial crisis, have deterred people from buying homes because they can’t produce the down payments. The more than 5 million foreclosures since 2006 have forced former owners to rent after their credit scores were ruined during the crash. The rental vacancy rate that tracks empty homes for lease dropped to a 12- year low at the end of the second quarter, according to the Commerce Department.