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Distressed Sales Share Declines in 2013

The National Distressed Sales Share is Trending Down and Improving Market Conditions

Mark Fleming    |    Market Trends

Distressed sales, including short and real-estate owned (REO), have been a ubiquitous element of the U.S. housing market since 2008. While it’s true that distressed sales drag down non-distressed sale prices, they have also been a needed source of supply, satisfying demand to rent single-family residential properties, and a needed source of counter-seasonal demand.

Distressed sales accounted for 33 percent of all sales at their peak in January 2009. In the chart, the counter-seasonal nature of the distressed sale share is apparent with peaks in every January since 2009. This is because demand for distressed sales has been much less seasonal than the traditional existing and new home sale markets.

The improvement in distressed sales has been slow until this year. Through September, the distressed sale share declined 10 percentage points from the seasonal peak in January 2013 to 14 percent. Additionally, both short and REO sale shares have declined this year.

The decline in the distressed sales share is consistent with the improvement in other housing statistics in 2013. In particular, with continued improvement in existing and new home sales, as we described in our monthly home sales update, and with a declining pace of completed foreclosures.

Prior to the housing crisis, the distressed sales share was typically only 2 or 3 percent. Given the current level of 14 percent, there is plenty of improvement required, but as with most other housing statistics, the trend is heading in the right direction. This bodes well for the housing market in 2014 as it gets closer to a state of “normality.”

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