RealtyTrac released a report today that lists the Washington metro region as one of the worst places to buy a foreclosure. While that’s bad news for real estate investors looking to snap up good deals on properties, it is good news for the area’s housing market.

“Maybe we should have named that differently,” said Daren Blomquist, vice president at RealtyTrac, with a laugh. “It’s worst from the perspective of a buyer coming into that market [to buy foreclosures]. But from a macro level and from the perspective of homeowners in the market, I think it’s a good thing because there are fewer foreclosures that you are competing against if you go to sell your home and foreclosures are not going to be weighing down on home values as much as they have in the past.”

Washington ranks in the top 25 of worst places to buy a foreclosure in the country, taking into account its foreclosure inventory (9,633 properties), inventory supply (10 months worth compared to 20 months nationwide), number of sales from January to October 2012 (9,412), percentage of all sales (13.2 percent), average foreclosure sale price ($258,556), average foreclosure discount percentage (37.1 percent), number of properties in 2012 with foreclosure filings (17,059) and annual percentage change in foreclosure activity (minus-11 percent).

The worst metro area in the country to buy a foreclosure is McAllen, Texas, followed by cities in the west, including Ogden, Utah; Las Vegas; Salt Lake City; Phoenix; Portland, Ore.; San Jose, Calif.; and Honolulu.  

The best places to buy foreclosures — where the best deals are to be had — are Palm Bay-Melbourne, Fla.; Rochester, N.Y.; Albany, N.Y.; New York-Northern N.J.-Long Island, N.Y.; and Lakeland, Fla.

Blomquist believes the Washington region is past the worst of the foreclosure problem that has plagued the housing market.

“There are still pockets of distress in the market that will have to be worked out over the next couple years, so it’s going to be a little bit of a bumpy road,” he said. “But mostly, I think the long-term trend is down in terms of foreclosures.”  

Even though the region has seen improvement, that doesn’t mean that some areas aren’t still struggling. Virginia appears to be ahead of Maryland because its faster foreclosure process — most foreclosures are settled out of court — allowed it to clear out its distressed properties much more quickly. Maryland is a judicial foreclosure state, which means foreclosures are conducted in the court system. The District’s foreclosure process has stalled as a result of a 2010 law.  

“I don’t know of any other metro area that straddles a non-judicial foreclosure state [Virginia] and judicial one [Maryland],” Blomquist said. “It is actually probably somewhat doing a disservice to just blanket the whole area as a worse place to buy [foreclosures] because if you look at the Maryland counties, many of them had an increase in foreclosure activity.”

Foreclosures were up 18 percent year-over-year in Montgomery County, 38 percent in Charles County and 58 percent in Calvert County. For those investors and buyers who missed out on the bottom of the market in Virginia, deals might still be had in Maryland.  

While Maryland has shown an increase in foreclosure sales recently, the trend across the country has been a decline in foreclosures and an increase in short sales.

Lenders “are much more inclined to agree to short sales as an alternative to foreclosure,” Blomquist said. “I think short sales are acting as a pressure release valve for some of the backlog.…We’re seeing a big increase in short sales that are happening even before the bank starts the foreclosure process. The banks don’t even bother filing the initial foreclosure notice. They just go ahead and preemptively agree to the short sale.”  

Short sales are still distressed sales, but the process is often quicker for a lender. States that have long foreclosure processes are seeing a huge increase in short sales. In Florida, which has the lengthiest foreclosure timetable in the nation, short sales were up 66 percent year-over-year in the third quarter.

Virginia saw an 11 percent year-over-year increase in the third quarter of short sales, while Maryland was up 25 percent and the District 29 percent.