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February Distressed Sales Shares Resemble 2008 Levels

REO and Short Sales Accounted for 14 Percent of Homes Sold Nationally

Molly Boesel    |    Mortgage Performance

Distressed sales—real estate-owned (REO) and short sales—accounted for 13.5 percent of total home sales nationally in February 2015, a 3 percentage point drop from February 2014 and a 0.8 percentage point decrease from January 2015. Distressed sales shares typically decrease month over month in February due to seasonal factors. The February 2015 distressed sales share was the lowest for any February since 2008.

Within the distressed category, REO sales accounted for 9.7 percent of total home sales in February and short sales made up 3.8 percent. At its peak, distressed sales totaled 32.4 percent of all sales in January 2009, with REO sales representing 27.9 percent of that share. 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. 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.

Michigan had the largest share of distressed sales of any state at 22.6 percent1 in February 2015, followed by Florida (22.2 percent), Illinois (20.4 percent), Maryland (19.1 percent) and Connecticut (19 percent). Nevada had an 8.4 percentage point drop in its distressed sales share from a year earlier, the largest decline of any state. California had the largest improvement of any state from its peak distressed sales share, falling 57.3 percentage points from its January 2009 peak of 67.5 percent. While some states stand out as having high distressed sales shares, very few states are even close to their pre-crisis distressed sales share. North Dakota, the District of Columbia and Hawaii are the only states within one percentage point of their respective pre-crisis distressed sales shares.

Of the largest 25 Core Based Statistical Areas (CBSAs) based on loan count, Miami-Miami Beach-Kendall had the largest share of distressed sales at 24.4 percent, followed by Orlando-Kissimmee-Sanford (24.4 percent), Tampa-St. Petersburg-Clearwater (23.8 percent), Chicago-Naperville-Arlington Heights (23.1 percent) and Las Vegas-Henderson-Paradise (19.1 percent). Atlanta-Sandy Springs-Roswell had the largest year-over-year drop in its distressed share, falling by 9.2 percentage points from 25.4 percent in February 2014 to 16.2 percent in February 2015. The CBSA with the largest overall improvement in its distressed sales share from its peak value was Riverside-San Bernadino-Ontario, Calif. At its peak in February 2009, distressed sales made up 76.3 percent of all sales in Riverside compared to its current share of 13.2 percent.

[1] The distressed sales share for states and CBSAs listed in this report was calculated using sales from the past 12 months.

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