BAP Blog First-Time Buyers Losing Interest in Short Sales

Processing delays have taken their toll on first-time homebuyer interest in short sales that now account for more than one of every six house sales as reported by the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. For first-time homebuyers the purchase 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 which was just before the originally-scheduled expiration of the federal homebuyer tax credit. The short sale transaction has long been a problem for buyers and sellers alike and with typical approval times of several months after a homebuyer first submits an offer. The Factor in slowing down short sale approvals include lost paperwork, coordination with multiple investors, slow appraisals, and mortgage servicer understaffing. But 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. Other types of distressed property like damaged REO and move-in ready REO are 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. 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.