Foreclosed sales at auctions double as prices gain

Short Sales

“The companies buying up single-family homes are doing well on their rental rolls,” Pallotta said. “They need to rent these properties in the short term until they reach their long- term plan of selling them when home prices reach the levels they want.”

Banks use short sales to mitigate losses. The number of such sales in the U.S. declined in September to 332,000 at an annual pace -- the lowest level in seven months, according to CoreLogic Inc., a mortgage data firm.

“Short sales were good for banks when values were dropping because it gave them a way to cut their losses,” RealtyTrac’s Blomquist said. “Now the market is beginning to work against them.”

Motivated Sellers

Banks have reduced their collection of repossessed homes by 26% to $7 billion from a year earlier, according to the Federal Deposit Insurance Corp. That’s 50% of the level they held at the height of the foreclosure crisis at the end of 2010. Firms are motivated to sell these dwellings because they have to pay monthly outlays for maintenance and insurance, said Jason Arnold, an analyst with RBC Capital Markets in San Francisco.

“Banks have been eager to dispose of properties but they have been loathe to do so at the loss levels they were looking at,” Arnold said. “With the improvement in values, they’re seeing it as a good time to start eating into those portfolios.”

As banks’ earnings and capital levels improve, they are better able to absorb smaller losses on auction home sales, Arnold said. The 6,940 FDIC-insured firms reported $42.2 billion in profit in the second quarter, up 23% from a year earlier.

“They are in a much better position to take the hit now, compared with the past few years,” he said.

Defaults Decline

Home prices in 20 U.S. cities rose 13.3% in September from a year earlier, the biggest jump since February 2006, according to a report today on the S&P/Case-Shiller index of property values. The biggest gain was in Las Vegas, at 29%, according to the report.

The housing market recovery that began in early 2012 has been fueled by mortgage rates near all-time lows that pushed price gains this year to levels last seen in 2005. Prices and sales probably will slow next year because of the increase in financing costs that began in May, according to the National Association of Realtors.

The median existing home price probably will gain 11% in 2013 and 5.3% next year, the trade group said. The median new-home price probably will increase 7.4% this year and 5.1% in 2014, the association said in a forecast posted on its website.

As banks sell repossessed homes, their portfolios won’t be replenished at the rapid rate they saw after the housing bubble burst. The share of U.S. mortgages that were more than 90 days late or in foreclosure fell to a five-year low of 5.65% in the third quarter as an improving economy helped more owners make their payments, the Mortgage Bankers Association said in a Nov. 7 report.

“Banks don’t want to be homeowners, and as long as the economy keeps on track their portfolios will keep shrinking,” RBC’s Arnold said.

www.bloomberg.com

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