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Distressed Sales Way Down Despite Slight Seasonal Uptick

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Distressed residential home sales, which include both REO properties and short sales, continued their steady decline nearing the end of 2015 despite an expected slight seasonal increase due to seasonality in the market, according to data released by CoreLogic [2].

The distressed sales share has been on the decline for nearly seven years, since reaching its peak of 32.4 percent in January 2009. For October 2015, that share was reported at 10.2 percent, less than a third of its peak share from nearly seven years ago. While seasonality produced a slight uptick of 0.2 percentage points in the distressed sales share, that share dropped by 2 full percentage points year-over-year in October 2015.

Despite being reported at one-third of its peak, the distressed sales share remained elevated in October 2015—about five times its pre-crisis average level of 2 percent. CoreLogic estimates that if the distressed sales share continues to decline at the rate at which it did in October 2015, it will reach that pre-crisis average of 2 percent by the middle of 2019.

REO properties represented 6.9 percent of all residential home sales in October 2015, slightly less than one-third of their peak of 27.9 percent, also reached in January 2009. October 2015's REO share was down 1.6 percent from October 2014, and it was the lowest REO share for any October since 2007. Likewise, short sales were way down in October, accounting for about 3.3 percent of all residential home sales. The short sales share fell below 4 percent in mid-2014 and has remained below 4 percent ever since, according to CoreLogic.

All but nine states experienced year-over-year declines in the distressed sales share in October 2015, according to CoreLogic. The state with the highest share was Maryland, at 20.3 percent; second was Michigan with 19.6 percent, followed by Florida (19.3 percent), Connecticut (19.1 percent), and Illinois (17.9 percent). The state with the lowest distressed sales share was North Dakota, with 2.7 percent, and Nevada experienced the largest decline year-over-year in October 2015 in distressed sales share with a drop of 5.7 percentage points. The state that experienced the largest decline from its peak distressed sales share was California (a drop of 59.1 percentage points from its peak 67.4 percent in January 2009). Despite all the steady and substantial declines, only North Dakota and the District of Columbia were within one percentage point of their pre-crisis distressed sales levels.

Out of the 25 largest core-based statistical areas based on loan count, the area with the highest distressed sales share was Orlando, Florida, with 21.8 percent. Tampa was second with 21.1 percent, and Baltimore was third with 20.7 percent. Miami (20.6 percent) and Chicago (20.5 percent) rounded out the top five.