Due to a confluence of several factors, experts predict there will likely be a significant uptick in the number of short sales for distressed properties throughout the rest of the year, with a spike coming over the next few months.
The market for short sales — that is, underwater homeowners selling their houses despite owing more on the mortgage than the property is worth — is expected to hit its all-time peak in 2012 largely because bankers are now realizing that this option is more profitable than foreclosures, according to a report from Reuters. For instance, many are forgiving the difference between the sale price and the remaining balance on the mortgage, which consumers still owed to the lender in the past.
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This option is also being pushed by the Obama administration, and has led many banks to start pushing more short sales through specialized programs, the report said. A loan amount forgiven used to be counted as taxable income under federal law, but new government initiatives no longer include that.
“We’re seeing a rush already,” Daren Blomquist of the foreclosure and distressed property monitoring firm RealtyTrac, told the news agency. “There was a big increase in the first quarter and we’re expecting that to continue.”
In fact, data from RealtyTrac shows that during the first quarter of this year alone, the number of short sales — 109,521 — was up 25 percent on an annual basis, and the highest level observed in three years, the report said. In some cases, the desire to help move on from underwater, distressed properties is so strong that banks have even begun to offer underwater borrowers large sums of money if they agree to a short sale for their distressed property.
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At the same time, as short sales are ongoing, many Americans are also snatching up other distressed properties that have been foreclosed upon. These properties are typically available at significantly reduced prices, which are made even greater bargains by housing affordability hovering near all-time lows. Interest rates on 30-year fixed-rate mortgages have been below 4 percent for nearly all of 2012. However, property values are also beginning to rise in many parts of the country, and therefore those who are considering purchasing homes are encouraged to do so soon.
Image: Aine D, via Flickr