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Distressed Prices Continue to Drop but Sales Expected to Decline

Median prices for REO and short sale transactions continue to decline and have fallen 10 percent since 2009, according to a new report from ""CoreLogic"":http://www.corelogic.com.

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Distressed sales are taking their toll on market readings of home prices. CoreLogic says when the distress factor is excluded from the equation, home prices are actually beginning to stabilize.

In May 2011, the company's ""excluding distressed sales"" price index dropped 0.4 percent from a year ago, compared to a decline of 7.4 percent for the all-transactions index. Non-distressed median prices for both existing and new homes are back to 2009 levels, according to CoreLogic.

While the distressed property market has been a prominent factor of the current housing cycle, the analysts at CoreLogic believe that prominence may begin to wane somewhat in the months ahead.

New foreclosure auction filings have dropped significantly since last October, according to the research firm.

At the same time, the industry's shadow inventory â€" which is the estimated pending supply of distressed properties â€" declined to 1.7 million homes in April 2011. That's down from 1.9 million homes a year ago and down nearly 20 percent from the shadow inventory peak hit in January 2010.

With these two distressed sale drivers narrowing, CoreLogic says such transactions will likely begin to decline late in 2011 and into 2012.

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Although presently the market share for distressed sales remains high, the company has found that geographical sources of distress are shifting and becoming more dispersed.

According to CoreLogic’s report, as of December 2008, four of the top five largest distressed sales markets were all located in California, and the top five markets averaged a distressed sale share of 68 percent.

As of April 2011, only two of the top five markets were in California and CoreLogic says more importantly, the average distressed share in the top five markets dropped to 56 percent.

CoreLogic’s data show that Detroit (59 percent) and Las Vegas (58 percent) led the nation with the highest share of distressed transactions in April. They were followed by Sacramento (57 percent) and Riverside (54 percent) in California and Warren, Michigan (51 percent).

While much of the focus on distress surrounds the share of sales, CoreLogic says the price discount for REO properties is an equally important factor.

REO price discounts are largest generally outside the markets with the highest share of distressed sales. Miami leads the way with a 62 percent REO price discount, followed by Chicago (60 percent), Detroit (60 percent), St. Louis (60 percent), and West Palm Beach (58 percent).

CoreLogic also notes in its report that equity â€" or lack thereof â€" remains a primary concern for the industry.

“Depreciation in home prices during the last four years has reduced home equity by more than half to $6.1 trillion and caused a rapid increase in the number of foreclosures,” CoreLogic said in its report.

Nearly 11 million, or 23 percent, of all residential properties with mortgages were in negative equity at the end of the first quarter of 2011, according to CoreLogic’s assessment.

The company says distribution of negative equity is heavily skewed to a small number of states. Nevada had the highest negative equity percentage in Q1 with 63 percent of all mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (36 percent), and California (31 percent).

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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