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When Will Distressed Sales ‘Normalize’?

REO BHWith much of the talk surrounding the housing market centered on “normalization” or returning to its pre-crisis state, one metric which the market is watching is the distressed sales share—the share of REO and short sales that comprise total residential home sales.

For February 2016, the distressed sales share declined by 2.9 percentage points over-the-year (and 0.4 percentage points over-the month) down to 11 percent, according to data released by CoreLogic on Thursday.

At their peak in January 2009, distressed sales accounted for nearly one-third of all residential home sales (32.4 percent) but has been declining steadily since then. By comparison, the pre-crisis share of distressed sales was typically around 2 percent; CoreLogic estimates that if the current rate of year-over-year decline continues, the distressed sales share will reach the “normal” pre-crisis level in slightly more than two years.

“Prior to the housing crash, the distressed share of total sales averaged about 2 percent,” CoreLogic Chief Economist Frank Nothaft said. Rising home prices have bolstered borrowers mortgage equity, and has been a driver of the large decreases in distressed sales. “If the current housing and mortgage market trends continue, we would expect the distressed sales share to get to the pre-crash level by mid-2018.”

February’s REO sales share of 7.8 percent was less than a third of what it was at its peak of 27.9 percent in January 2009. Like the overall distressed sales share, February’s REO sales share was down by 2.9 percentage points over-the-year and is the lowest share for any February since 2007.

CoreLogic GraphMeanwhile, the short sales share for February was 3.3 percent, and has remained in the 3 to 4 percent range since falling below 4 percent in mid-2014, according to CoreLogic.

All but nine states recorded a year-over-year decline in distressed sales share in February 2016; the five states with the highest share were Maryland (19.9), Connecticut (19.1), Michigan (18), Florida (17.5), and Illinois (17.1) while North Dakota had the lowest distressed sales share at 2.5 percent. But for all the year-over-year declines, only North Dakota and the District of Columbia had a distressed sales share within one percentage point of their pre-crisis levels.

California was the state that in February 2016 experienced the largest decline in distressed sales share from its peak. Since reaching a peak of 67.4 percent in January 2009, the distressed sales share in California has fallen by 59.8 percentage points.

The five metros with the highest distressed sales share in February were Baltimore (19.8), Chicago (19.4), Tampa (19.1), Orlando (19.1) and Las Vegas (14.1).

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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