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Clear Capital: Stability Ahead as Distressed Property Prices Rise

The real estate valuation firm ""Clear Capital"":http://www.clearcapital.com sees signs of market stability as we move into the summer months.


New data released Thursday by the company shows that U.S. home prices continue to fall, but the 2.3 percent drop recorded for the three months ending in May was half the decline seen in the previous month's report.

Clear Capital says the median price paid for distressed properties has started to rise, indicating the REO market is seeing increased activity toward the upper end of the price range and helping to rein in the depreciating trend of the past several months.

The ""uptick in distressed sale prices, combined with the upcoming summer buying season, could stabilize home prices,"" according to the Clear Capital report.

This follows the ""realization of an official double-dip"":http://dsnews.comarticles/home-prices-have-officially-double-dipped-clear-capital-2011-05-04 seen in the company's May report on its home price readings, which was based on market data through the end of April.

One month after reporting a nationwide double dip in home prices, Clear Capital says ""quarter-over-quarter home prices are showing signs of improvement as the deep winter lows were replaced by more stable spring prices,"" suggesting ""prices are stabilizing as the typically stronger summer buying season approaches.""

Based on historical patterns, the non-REO (""fair market"") segment increases its share of total sales volume in the spring and summer months, Clear Capital explained. The company says this is ""critical"" as its historical data has shown strong negative correlations between home prices and large REO sales volumes.


The prevalence of distress in sales activity has now started to plateau, according to Clear Capital. Its latest study notes that REO saturation â€" the percentage of bank-owned homes sold as compared to all properties sold â€" has leveled off after climbing 10 percent since July 2010. The REO saturation rate slipped 0.6 percentage points in May to 33.9 percent.

Clear Capital says the present leveling of quarterly declines is ""expected."" All spring seasons, even since the 2006 downturn, have seen an increase in fair market sales volume (14% on average), compared to the preceding winter.

The company noted that the REO segment doesn't typically follow a seasonal cycle because the release of distressed properties to the market is determined through the foreclosure process and sales driven by different marketing strategies.

The seasonal rise in non-REO volumes is now merging with a new trend, according to Clear Capital. The company's market analysis has found that since the fourth quarter of 2010, the median price for distressed properties crept upward 5.0 percent while REO sale volumes have moderated.

""This marks the longest gain in median price for REOs since the market correction began in 2006,"" Clear Capital said. ""This is a positive signal at minimum; it indicates buyers' appetite for higher-end REOs. Even with elevated distressed activity, this introduces the potential for gains.""

Regional quarterly price declines also softened across the nation, with the Northeast, West, and South regions all posting quarterly declines of less than 2.0 percent in May. The Midwest, though, saw a drop of 4.9 percent.

Detroit remains the worst performing market â€" a position it's held on Clear Capital's chart for five consecutive months. Home prices there were down 13.2 percent quarter-over-quarter in May. Detroit has an REO saturation rate of 58 percent.

Washington, D.C. again held onto the title of best performing market, with a quarter-over-quarter price gain of 4.5 percent and an REO saturation rate of 17.5 percent.