1st Time Homebuyer Short Sale Interest Fading

Processing delays have taken their toll on first-time homebuyer interest in short
sales, according to the latest Campbell/Inside Mortgage Finance HousingPulse
Tracking Survey.

First-time homebuyer purchases of short sales dropped to 39.7% of short sale
transactions in August, HousingPulse found. That represented a three-month slide
and was the lowest level for first-time homebuyers ever recorded by the survey.
The first-time homebuyer share of short sales hit a peak of 54.1% of all short sale
transactions in November 2009, just before the originally scheduled expiration of the
federal homebuyer tax credit.

Given that home purchases by current homeowners do little to absorb the supply
of distressed properties, the housing market is increasingly dependent on investors to
pick up any slack in purchases by first-time homebuyers.
Short sale transactions have long been problematic for buyers and sellers alike,
with typical approval times of several months after a homebuyer first submits an
offer. Factors slowing down short sale approvals include lost paperwork,
coordination with multiple investors, slow appraisals, and mortgage servicer
understaffing.

Still, for many first-time homebuyers, average short sale prices of 27% lower than
non-distressed properties compensated for the wait time. But with average time-on-market
for short sales stalled at 16.6 weeks—with the majority of that time spent
waiting for short sale approval—short sale transactions are becoming less popular
with first-time homebuyers.