Distressed Home Discounts at 6-Month High

In its just-released, first monthly report on distressed sales activity,  First American CoreLogic announced that distressed home sales accounted for 29 percent of all sales in the U.S. in January: the highest level since April 2009.

Distressed sales – such as short sales and real estate owned (REO) sales – peaked in January 2009 when distressed sales accounted for 32 percent of all sales transactions. After the peak in early 2009, the distressed sale share fell to 23 percent in July, before rising again in late 2009 and continuing into 2010.

Data Highlights:

• The rebound in distressed sales occurred due to increases in both the REO and short sales shares. The REO share increased to 22 percent in January 2010, up from 19 percent in December but down from a year ago when it was 27 percent. Short sales accounted for 8 percent of all sales in January, up from 7 percent in December and 5 percent 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.
• Among the largest 25 markets, Riverside, CA, had the largest percentage of distressed sales in January (62 percent), followed closely by Las Vegas (59 percent) and Sacramento (58 percent).
• Top REO market was Detroit where REO share was 48 percent, followed closely by Riverside (47 percent) and Las Vegas (45 percent).
• San Diego’s short sale share was 19 percent in January, the highest nationally. Next came Sacramento (18 percent) and Oakland (16 percent).

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: Florida is a judicial state where foreclosures process through the courts and take quite a bit longer than in California, Arizona or Nevada, where non-judicial foreclosures are the norm.

Among large markets, the biggest year-over-year declines occurred in California where the distressed sale share fell by over 10 percentage points in Oakland, San Diego, Los Angeles and Sacramento. The drop in the distressed share occurred generally in the most distressed markets. In markets with more moderate levels of distressed sales, the distressed share was relatively flat compared to the year ago levels. Orlando, Seattle and Houston were the only markets among the top 25 that experienced an increase in distressed sales, but the increases were small.

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.