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Clear Capital: REO Sales On Rise

Apr. 6, 2015--Sorohan, Mike msorohan@mba.org
Clear Capital, Truckee, Calif., said short sales and real estate owned sales rose by more than 2.2 percent in the first quarter, the largest increase since 2012.

The company’s monthly Home Data Index Market Report said the national distressed saturation rate rose to 18.9 percent in the first quarter as home prices continued to moderate. Regionally, distressed sales comprised 13.7 percent in the West, 23.2 percent in the South, 15.1 percent in the Northeast and 22.1 percent in the Midwest.

The report said quarter-over-quarter, all four regions saw an increase in distressed saturation: the West increased by 1.4 percentage points, the South by 2.1 percent, the Northeast by 2.6 percent and the Midwest the largest gain, 3.8 percent.

“Investors seeking low prices with high yield took advantage of distressed opportunities, helping some of the recession’s hardest hit metros,” said Alex Villacorta, Clear Capital vice president of research and analytics. “They reduced high rates of distressed saturation by creating demand in the absence of traditional home buyers at the start of the recovery. In turn, this helped drive up prices in key recovering MSAs.”

The report said with the West seemingly “tapped out,” distressed migration moved south to hotspots, such as Florida, noting that the Northeast and Midwest, the two regions with the largest increase in distressed saturation, represent 78 percent and 67 percent of judicial processing states, respectively. Florida, home to four of the five Top 50 MSAs with the highest percentage of distressed sales, had a distressed saturation rate of 30.6 percent, higher than that of the entire Southern region by 7.4 percentage points.

“Florida is a judicial-only state, where the foreclosure process is slower than in non-judicial states,” Villacorta said. “The uptick in distressed saturation and drastically moderating prices in the past year could mean that there is a backlog of shadow inventory hitting these judicial markets. If the supply continues to increase faster than demand, this area could see prices continue to fall, creating more uncertainty in overall home prices yet also potentially offering a housing bonanza with deals for investors and traditional home buyers alike.”

Orlando reported the highest percentage of distressed saturation in the first quarter, 37 percent. Over the past three quarters, distressed saturation ticked up by at least one percentage point per quarter in Orlando; conversely, price growth over the past three quarters slowed, to 0.5 percent in the current quarter, down from 3 percent one year ago. Miami’s distressed saturation rate of 29.9 percent also increased over the past three quarters.

Villacorta said the rise in first quarter foreclosure rates suggests an abundance of distressed inventory still available in the market. “The pace of the judicial process is sure to obstruct the flow of distressed inventory through the market,” he said. “Judicial states, like Florida, could expect to be backed up for some time, belaboring a healthy recovery in certain markets.”