The share of distressed home sales that comprise all residential home sales in the United States continued its steady decline in August and is less than three years away from reaching its historical “normal” level, according to data released by CoreLogic on Wednesday.
The distressed sales share, which includes sales of REO properties and short sales, was reported to be 9.3 percent for August 2015, down 2.3 percentage points from August 2014. August’s distressed sales share of 9.3 percent is the lowest since September 2007 and is less than a third off from its peak in January 2009, when it made up nearly a third of total residential home sales (32.4 percent).
Within the distressed sales category, 6 percent were REO properties and 3.3 percent were short sales, according to CoreLogic. During the peak for distressed sales in January 2009, the REO properties made up 27.9 percent of all home sales. The share of short sales fell below 4 percent in mid-2014 and has stayed around the 3 to 4 percent level since.
CoreLogic stated in the report that when the share of distressed sales is high, it can pull down non-distressed home prices because distressed properties sell at a discount to non-distressed homes. CoreLogic pointed out that while distressed sales are important in clearing out the inventory of foreclosed properties, there will always be some level of distress in the housing market, and if the current year-over-year rate of decline continues, the distressed sales share should fall to its pre-recession “normal” level of 2 percent by the middle of 2018.
The five states with the highest distressed sales share in August 2015 were Maryland (20.8 percent), Florida (20.3 percent), Michigan (19.9 percent), Connecticut (19.1 percent), and Illinois (18.7 percent), while the state with the lowest distressed sales share during the month was North Dakota (2.7 percent). Despite the steady declines, only North Dakota and Washington, D.C., were within one point of their pre-crisis distressed sales share in August.
Of the largest metro areas based on loan count, Orlando-Kissimmee-Sanford, Florida, had the largest distressed sales share in August at 23.4 percent. The metro area with the largest decline from its peak was Riverside-San Bernardino-Ontario, California, which experienced a drop from its peak of 76.3 percent in February 2009 to 11.4 percent in August 2015.