Short sales suggest more price drops

Short sales suggest more price drops

There's a lot of important trend numbers to follow in the current residential foreclosure spike, but Peter Murphy, president of Tampa-based Home Encounter, sees one number as most important — 71%.

That's the portion of pending home sales in Tampa Bay (Hillsborough, Pasco, Pinellas and Polk counties) that are either short sales or bank owned. Short sales make up the vast majority, nearly 61% of all pending sales and bank owned were 10%, according to information provided by Home Encounter LLC from the Mid-Florida Multiple Listing Service.

The jump in expected short sales is huge given that short sales in the same market were only about 11% of all closed sales in January of 2009. By the end of the 2009 it was 21.3% of all sales transactions.

The growing number of short sales is both good and bad news for homes values, Murphy says. Short sales require considerably less time than foreclosures, taking from three to six months before closing compared to nine to 18 months. Short sales also tend to retain more of the home's value, roughly a 20% lower value than a conventional sale versus foreclosure's 50% lower price. But a short sale is still a distressed transaction hurting overall home values.

“Looking at pending sales, prices are at about 12% lower than where we are now,” he says. “So it's my best guess that we are in for at least a 12% price decline in 2010. It could be a whole lot worse.”

Home Encounter is a real estate consultancy firm offering investment, property management and brokerage services.