The national percentage of residential single-family properties that were REO was 10 percent as of February 2015, which is five times its pre-crisis share (2 percent), meaning that in many metro areas the REO share is still way above pre-crisis levels, according to CoreLogic  Senior Economist Molly Boesel.
In CoreLogic's May 2015 MarketPulse  released earlier this week, Boesel examined the question of whether or not REO share was headed back toward "a more normal level." Its most recently measured rate of 10 percent is far below the share at the worst of the crisis, which was 28 percent. In some metros, the REO share got as high as 70 percent at the worst of the crisis.
One of the benefits of declining REO inventory is the elimination of the "saturation effect," or the narrowing of the discount of REO prices to non-distressed resales, according to Boesel. During the crisis, the discount narrowed to about 30 percent, whereas it fell between 40 and 60 percent before the crisis.
"Falling REO shares would most likely help local prices, not only because fewer REOs are selling at a discount, but also because the saturation effect should go away," Boesel said. "REO sales can also serve as a substitute for new home sales. Many areas were overbuilt in the run-up to the housing crisis, therefore a lower REO share my boost homebuilding in some areas of the country."
In an examination of 386 metro areas which had at least 100 home sales in the last year, CoreLogic found that only 16 of them had REO shares below their pre-crisis means (calculated during a six-year period from 2000 to 2006) and the median distance between the REO share in the metro areas in February 2015 and pre-crisis was 6.2 percent. Only 3 percent of the metros measured (14 of them) had REO shares in February 2015 that were within 1 percent of their pre-crisis shares, according to CoreLogic. Six metros (2 percent) had February 2015 REO shares that were more than 20 percent higher than their pre-crisis means, led by Detroit, which was 48 percent in February 2015 compared to just 5 percent before the crisis.
Boesel cautioned that housing markets do not need to fall below their pre-crisis REO inventory levels in order to completely heal, but comparing current REO shares to those during a more "normal time period" does present an idea of "how far away the metros are from normalcy."