Distressed home sales – such as short sales and real estate owned (REO) sales – accounted for 29% of all sales in the U.S. in January – the highest level since April 2009, according to First American CoreLogic. The peak occurred in January 2009, when distressed sales accounted for 32% of all sales transactions. The distressed-sale share fell to 23% last July before rising again late last year.
The rebound in distressed sales occurred due to increases in both the REO and short-sale shares. The REO share increased to 22% in January 2010 – up from 19% in December but down from a year ago, when it was 27%. Short sales accounted for 8% of all sales in January – up from 7% in December and 5% a year ago.
During the last 12 months, there were 974,000 distressed sales: 740,000 were REO sales and 234,000 were short sales. The data was extracted from First American CoreLogic's public-record property transactions database, which covers more than 2,200 counties in the U.S.
Among the largest 25 markets, Riverside, Calif., had the largest percentage of distressed sales in January (62%), followed closely by Las Vegas (59%) and Sacramento (58%). The top REO market was Detroit, where the REO share was 48%, followed closely by Riverside (47%) and Las Vegas (45%).
San Diego's short sale share was 19% in January, making it the highest-ranked short-sale market, followed by Sacramento (18%) and Oakland (16%).
Although the top 10 markets for foreclosures are all located in Florida, only two Florida markets – Orlando and Cape Coral – made the top 10 distressed-sale list. The most likely reason is that Florida is a judicial state. In turn, its foreclosures process, which works through the courts, takes longer than in California, Arizona or Nevada, where non-judicial foreclosures are the norm.
First American CoreLogic notes a non-linear price response to distressed sales. At low shares of distress, the price discount for distressed sales relative to market sales is high, as the very few properties that are distressed are highly so. Examples of low-distress/high-price-discount markets are Tulsa, Okla., and Pittsburgh.
At moderate to higher levels of distress, the price discount rises with the increase in the distressed-sale share, as expected.
However, at very high distressed-sale shares, the price discount is much lower, which means that the prices in the two markets (distressed and non-distressed) begin to converge into one large distressed market, First American CoreLogic says.
Examples of very distressed markets where the gap between distressed and non-distressed prices is small include Modesto, Bakersfield and Stockton.
The average non-distressed market-sale price in January was $247,700, but the distressed average price was $161,600. The average REO price was $141,900, compared to $215,300 for short sales. The discount between market sales and distressed sales is currently about one-third and has been running at the low to mid-30s during the last 12 months, the data provider says.
SOURCE: First American CoreLogic