Cash, Distressed Sales Closing in on "Normal"

The end is near.  CoreLogic said today that the market share of home sales accounted for by distressed properties may return to normal levels by the end of this year.  This is about a half year earlier than the company had been predicting as recently as last month. 

Distressed homes sales accounted for 7.5 percent of home sales in November with sales of bank-owned property (REO) accounting for 4.9 percent and short sales 2.6 percent.  The total distressed property share was down 4.3 percent compared to November 2015 and was the lowest for any month since September 2007.

At the peak for distressed sales in January 2009, they accounted for 32.4 percent of the market with REO sales making up 27.9 percent.  Prior to the housing crisis distressed sales usually accounted for about 2 percent of all home sales.  CoreLogic now estimates that, if the current year-over-year decline continues, sales will reach that "normal" rate by the end of 2017.  The company's earlier prediction was for this level to be accomplished in mid-2018.

There was a similar change in the forecast for all-cash sales, now expected to return to the pre-crisis range of about one-quarter of sales by the middle of this year, compared to the mid-2018 period forecast a month ago and a mid-2019 prediction last fall. Cash sales in November accounted for 32.4 percent of the month's sales, a decline of 4.5 percent from the previous November and 14 percentage points below the peak of such transactions in January 2011.

Cash sales were closed at the highest rate for REO properties, 60.2 percent.  Just under a third of resales, which are the largest category of home sales, were all cash, followed by 31.9 percent of short sales and 15.5 percent of new home sales. The shrinking percentage of distressed sales has been a driver of the shrinking cash closings.

Distressed sales were down on an annual basis in all but eight states.  The highest share, at 18.4 percent, was in Maryland, followed by Connecticut (18.2 percent), New Jersey (15.8 percent), Illinois (14.3 percent) and Michigan (14 percent). North Dakota had the smallest distressed sales share at 1.4 percent.

New York had the largest cash sales share of any state at 47.4 percent, followed by Alabama (47.3 percent), Michigan (44.1 percent), Florida (42.4 percent) and Indiana (41 percent).