New data from foreclosure specialist RealtyTrak show that foreclosed homes in 10 states are selling for anywhere from 35% to 41% off the average price of non-distressed properties.
The biggest discounts were in Ohio and Illinois, where foreclosed homes sold at an average discount of 41% from regular prices. The discount was 39% in Kentucky and Maryland, 38% in Tennessee, 37% in Wisconsin, and 36% in Delaware, Pennsylvania, Oklahoma and Louisiana.
In what may seem a contrary statistic, none of the 10 states where the discounts are biggest are among the states with the highest percentage of foreclosed properties on the market. In those states, the discounts are well below the U.S. average of 27%. In two states, Utah and Montana, homes in foreclosure sold for more than the average price of non-distressed properties.
One reason for the inverse relationship is that large numbers of foreclosed properties on the market attract large numbers of bargain hunters, which in turn forces owners of non-distressed homes to lower their selling prices in order to make sales. Another reason involves where the foreclosed properties are located: If most of a state's foreclosed homes are in lower-income neighborhoods, their effect on house prices in better-off areas will be slight at best, thus increasing the size of the discount. Discounts are also larger on homes that have returned to bank ownership than on homes in earlier stages of foreclosure. RealtyTrak reports that the average discount on bank-owned homes is 35%, while short sales - homes where the seller and lender agree to sell the property for less than what is owed on its mortgage - have an average discount of only 9%.
Still, there were a few states that had both high rates of foreclosure and bigger-than-average discounts. One was California, where foreclosures account for 45% of all home sales and sold at an average discount of almost 34%.
The discounts will likely get smaller in coming months as fewer new foreclosures come onto the market. RealtyTrak also reported earlier this month that foreclosure activity in April hit a 30-month low, and foreclosures are forecast to continue falling for the rest of the year.
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