Distressed Sales Constitute Big Share of Home Resale Market

Distressed home sales are once again approaching a one third share of the real estate market for existing homes, depressing home price trends and indicating that the housing market is not yet out of the woods.

According to a report issued by First American CoreLogic on Thursday, the sale of homes that could be considered distressed accounted for 29 percent of all home resales in January.  This was the second highest share recorded for these sales, exceeded only by the peak of 32 percent reached last April.  To provide further context, prior to the fourth quarter of 2007, distressed sales constituted less than 5 percent of the resale market.

CoreLogic defines a distressed sale as a non-arms length transaction such as the sale of bank-owned real estate (REO) or short sales in which the mortgagee agrees to release its loan for less than the full principal balance of the mortgage.  Both REO and short sales have increased in recent months after slowing for a time following the April 2009 peak.  

Sales of bank-owned property increased to 22 percent of home sales in January compared to 19 percent in December.  One year earlier, REO sales represented a 27 percent market share.  Short sales accounted for 8 percent of all sales in January compared to 7 percent in December.  In 2009 there were a total of 740,000 sales of REO and 234,000 short sales.

Distressed home sale prices have been running at around a one-third discount from market sales prices for the last year.  In January the average price for a house sold on the open market was $247,700, but the average REO property sold for $141,900 and the average short sale brought $215,300.  The average price for all distressed properties was $161,600.

Riverside, California had the largest percentage of distressed sales among the 25 largest markets at 62 percent of all sales followed by Las Vegas and Sacramento at 59 percent and 58 percent respectively.  The largest share of bank-owned housing sales occurred in Detroit (48 percent) and Riverside (47 percent).  The highest percentage of short sales was recorded in San Diego (19 percent) followed by Sacramento (18 percent) and Oakland (16 percent).  While Florida is home to all 10 markets having the most foreclosures, only Orlando and Cape Coral were among the top cities for distressed sales.  CoreLogic speculates that the judicial foreclosure process required in that state makes foreclosures take longer than in other distressed states like California and Nevada.

CoreLogic distilled data for the report from its data base of public records of property transactions for 2,200 counties in the U.S.   The data covers an estimated 85 percent of all sales transactions nationwide.  REO sales are measured by recorded deed transfers while short sales were identified by comparing the sales price to the senior and any junior mortgage lien amounts (including cash out refinances) to determine the total mortgage debt.

CoreLogic is a provider of property profiles, digital street maps, plat maps, automated valuation models, and research services and other real estate related products.