First American RES New Study Investigates Residential Real Estate Foreclosures

November 15, 2006

First American Real Estate Solutions (RES®), released its 2006 nationwide foreclosure study that investigates the increasing prevalence of foreclosure sales and the depth of discounts in 705 counties in 43 states, including the District of Columbia.

Entitled “A Ripple, Not a Tidal Wave: Foreclosure Prevalence and Foreclosure Discount,” the study by Christopher Cagan, Ph.D., director of research and analytics at First American Real Estate Solutions, investigates the trends in the number and prevalence of residential foreclosures and the discounts that are offered to sell properties that are repossessed by lenders. The study finds that foreclosure prevalence and discounts have been increasing, but this trend remains a ripple that has not become the tidal wave some expected would overwhelm the market.

Cagan’s research investigates the correlation between foreclosures as a percentage of total sales and the size of the discount buyers typically receive when purchasing foreclosure properties.

For example, in Orange County, Calif., where foreclosure sales accounted for 0.5 percent of total sales during the first half of 2006, the median discount was 3.8 percent; whereas in Baltimore, Md., foreclosures made up 8.9 percent of sales for the same time period, with a median discount of 20.0 percent.

By a careful process of data aggregation and analysis, the study also finds a strong tendency toward increased foreclosure prevalence and deeper discounting for properties in the lower price tiers within their markets and communities.

“The prevalence of foreclosures and the depth of discounts can be correlated,” said Cagan. “Discounts tend to be deeper in markets where foreclosures comprise eight percent or more of all sales, regardless of geographic location or market type.”

Among the areas with few foreclosure sales and little or no foreclosure discounts during the first half of 2006 were Arizona, Nevada and Virginia. States where foreclosures were more prevalent and discounts were deeper included Colorado, Missouri, Michigan, Ohio and Pennsylvania.

“Foreclosure rates and discounts are key factors that impact real estate transactions and the performance of mortgage investments,” said George Livermore, president of The First American Corporation’s Property Information and Services Group. “By closely monitoring and analyzing patterns of default nationwide, we help our clients refine their insight into risks and opportunities as they emerge.”

Source: The First American Corporation

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