May 1st, 2015
Distressed sales, which account for real-estate owned (REO) and short sales, fell to a pre-recession low in February, according to a recent report from CoreLogic. Although distressed sales usually decrease in February because of seasonal factors, this year was the lowest since 2008, at 13.5 percent of all nationwide home sales.
Distressed sales peaked at the height of the recession in January 2009, making up 32.4 percent of all home sales. REO sales accounted for 27.9 percent of this category during that time. For February, REO sales were down to 9.7 percent.
“The ongoing shift away from REO sales is a driver of improving home prices, as bank-owned properties typically sell at a larger discount than short sales,” the CoreLogic report stated. “There will always be some amount of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2 percent. If the current year-over-year decrease in distressed sales share is maintained, the distressed sales share would reach that ‘normal’ 2 percent mark in mid-2017.”
Variations by region
Although the shrinking portion of distressed sales is largely good news for the housing market, only North Dakota, Hawaii and the District of Columbia are within one percentage point of their pre-crisis distressed sale level. In particular, North Dakota has a strong economic climate and low unemployment due to oil and gas production, according to MarketWatch.
CoreLogic’s data showed at 22.6 percent, Michigan had the highest share of distressed sales in February at 22.6 percent, followed by Florida and Illinois.
If the trend of distressed sale declines continues, it could be a positive sign for the housing recovery.