Distressed Properties Account for Half of Home Purchases

February 23, 2011 (Chris Moore)
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Calling the latest data released in its January report “an ominous sign,” Campbell/Inside Mortgage Finance reports in this month’s HousingPulse Tracking Survey that a staggering 49.6 percent of home purchase transactions were distressed properties, the highest level in nearly a year.

The share of distressed properties, which includes bank-owned properties (REO) and short sales, was up from 47.2 percent in December, and well above the 44.5 percent share seen back in November.

California broke the bank with an even larger share of distressed purchases, at 66 percent, followed by Florida with 63 percent and it was even worse yet in the combined markets of Arizona and Nevada, where a whopping 72 percent of home sales were distressed properties.

Campbell/Inside predicts if market trends continue the majority of all homes sold in the United States will be distressed properties within just a few months.

Comments from real estate agents collected as part of the HousingPulse survey confirmed the growing share of distressed properties. “I have noticed that less than 40 percent of what is on the market is property that is just ‘For Sale’ and not a short sale or REO,” commented one agent in California. “We are primarily an REO/short sale market with (only) about 20 percent conventional sale at this juncture,” added an agent in Nevada. “Short sales occupy 65 percent of market share, REO’s occupy 30 percent of market share, non-distressed are 5 percent or less,” reported another agent in Nevada.

First-time homebuyer activity slipped to 35 percent in January, down from 37.7 percent in December as mortgage rates crept higher and the FHA loans got more expensive. FHA lending garnered just a 27.7 percent share of mortgages, down from 30.2 percent in December.

The survey predicts additional downward pressure on pricing as the amount of distressed properties increases and the amount of first-time buyer’s decreases, especially for the categories of damaged REO properties and move-in ready REO properties.

Over the past 12 months, time on market for the REO categories has strongly increased while the average number of offers has decreased. Also over the past 12 months, average prices for damaged REO have declined by 16 percent while average prices for move-in ready REO have declined 20 percent. Non-distressed prices have declined only 4 percent while the prices for short sales have been nearly flat.

Tags: Campbell/Inside Mortgage Finance, HousingPulse Tracking Survey, distressed properties, REO, first-time homebuyer