Distressed Property Prices Rise on Strong Demand

NEW YORK (TheStreet) -- Distressed property prices are rising on the back of strong investor demand and limited inventory, RealtyTrac said in a report released Thursday.

Properties in foreclosure or owned by lenders sold for an average price of $171,704 during the fourth quarter, increasing 2% from the third quarter and a4% from the fourth quarter of 2011.

Short sales -- where the borrower and bank agree to sell the property for less than the amount owed -- also saw improving prices, helping to reduce lenders' losses. Short sales in 2012 were short of the loan amount by an average of $81,621, down 7% from an average $87,809 in 2011.

Other firms have also reported a narrowing "foreclosure discount."

Mortgage technology firm FNC measures the foreclosure discount by comparing the foreclosure sale price to the underlying market value of the property, which is the market price the seller would receive if the property were sold under normal circumstances.

FNC last week reported that the foreclosure discount had dropped to 12.2% in the fourth quarter of 2012, compared to the 25% discount seen at the peak of the credit crisis in 2008 and 2009.

According to that report, higher-priced foreclosed homes were selling for close to market value, while lower-priced homes still suffered an 18.4% discount in the fourth quarter of 2012.

According to RealtyTrac, the average price of a foreclosure sale is at a 30% discount to the average non-foreclosure sale price.

Distressed property sales still account for 43% overall existing home sales, which has the effect of depressing overall prices.

However, the number of new foreclosures have been declining, while the existing inventory of foreclosed homes has been rapidly seized by yield-hungry buyers.

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