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October data shows signs of life for Maryland real estate p2

We are talking about RealtyTrac Inc.'s recent report on foreclosures and short sales during October 2013. The data for Maryland showed a high percent of short sales -- we ranked third in the nation -- and a fairly low percent of foreclosure sales. New foreclosure filings, though, were still high.

The uptick in short sales is actually good news. But before we get into that, let's explain what a short sale is.

When a homeowner is "underwater" -- that is, when he owes more on his mortgage than his home is worth, he can ask the bank for permission to sell at the lower price. The homeowner walks away with nothing but his credit rating intact, and the bank takes the loss on the loan.

Home values plummeted when the housing bubble burst in 2008 and 2009, and refinancing was not always practical or possible. Rather than default on the mortgage and deal with the financial consequences of a foreclosure, some homeowners opted for short sales.

As home values have crept upward in Maryland -- up 4 percent from September 2012 to September 2013, according to RealtyTrac -- short sales have become more attractive to lenders. The loan amount and the sale price are closer than they were, so the lender is taking less of a loss. And, with home values up, the cost of foreclosing on a home and trying to sell it at auction may well outpace the loss incurred in a short sale. Lenders likely look at a short sale as the better bet, too, because lenders would so much rather not be landlords.

All of his adds up to a ray of hope for Maryland real estate -- residential and commercial alike. If consumers aren't buying those homes, investors are. Residential real estate investment tends to attract commercial real estate investment, and communities begin to recover. It's a slow recovery, especially compared to how quickly the market crashed, but it is a recovery.

Sources: 

Baltimore Business Journal, "Short sales in October made up 8.2 percent of Maryland home sales," Kevin Litten, Nov. 26, 2013

RealtyTrac Inc., Maryland Real Estate Trends & Market Info - October 2013, accessed Dec. 11, 2013

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