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REO Homes Are Getting Big Discounts

First-time homebuyers and investors are snapping up foreclosures in large quantities and at considerable discounts.

According to RealtyTrac, foreclosure homes accounted for 31% of all residential sales in the first quarter of 2010, and the average sales price of properties that sold while in some stage of foreclosure was almost 27% below the price of properties not in foreclosure.

The foreclosure tracking service based in Irvine, Calif., reported that a total of 232,959 U.S. properties were in some stage of foreclosure including default, scheduled for auction or bank-owned, or sold to third parties in the first quarter.

This was a decrease of 14% from the previous quarter and down 33% from the first quarter of 2009, when sales of foreclosure homes accounted for 37% of all residential sales.

"As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration," said James Saccacio, chief executive officer of RealtyTrac.

The average sales prices on properties in some stage of foreclosure decreased 23% from 2006 to 2009 while the average discounts on foreclosure purchases steadily increased from 21% in 2006 to 27% in the first quarter of 2010.

Discounts on REOs are larger than discounts on preforeclosures, although discounts on preforeclosures appear to be trending higher as short sales become more common.

A total of 144,503 REO properties sold to third parties in the first quarter, down 13% from the previous quarter and down 27% from the first quarter of 2009.

REO sales accounted for 19% of all sales in the first quarter, up from 16% in the fourth quarter of 2009 but down from 21% of all sales in the first quarter of 2009.

REOs sold for an average discount of 34%, rising from an average discount of nearly 32% in both the previous quarter and the first quarter of 2009. 88,456 preforeclosure properties, in default or scheduled for auction, sold to third parties in the first quarter, down 15% from the previous quarter and down nearly 41% from the first quarter of 2009.

Preforeclosure sales made up 12% of all sales, up from 10% in the previous quarter but down from 16% a year ago. Preforeclosures, which are often short sales, sold for an average discount of nearly 15%, up from nearly 14% in the prior quarter but down from 16% in the first quarter of 2009.

Nevada, California and Arizona posted the highest percentage of foreclosure sales in the first quarter. These accounted for 64% of all sales in Nevada, the highest percentage of any state, although its percentage was down from 65% of all sales in the previous quarter and 75% of all sales a year ago.

California reported the second highest percentage, with foreclosures accounting for 51% of all sales in the first quarter, up slightly from 50% in the previous quarter but down from 70% of all sales in the first quarter of 2009.

Foreclosure sales were also down in Arizona from the first quarter of 2009, but the state still posted the third highest percentage with foreclosure sales at 50%.

Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon.

More than 1.2 million foreclosure properties sold to third parties in 2009, up 25% from 2008 and an increase of nearly 327% from 2007. Ohio, Kentucky and Illinois posted the highest foreclosure discounts. The average sales price for foreclosures was 39% below the average sales price of nonforeclosed homes in these three states.

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