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Distressed Sales Accounted for 10 Percent of Homes Sold Nationally in September 2015

Most States Had Lower Distressed Sales Compared With a Year Ago

Molly Boesel    |    Mortgage Performance

  • Distressed sales were 9.7 percent and REO sales were 6.4 percent of total sales in September 2015
  • Maryland still on top with the largest share of distressed sales among all states at 20.7 percent
  • Distressed sales share should reach pre-crisis level in 2018

Distressed sales, which include real estate-owned properties (REOs) and short sales, accounted for 9.7 percent of total home sales nationally in September 2015, down 2.4 percentage points from September 2014 and down 0.1 percentage point from August 2015.

Within the distressed category, REO sales accounted for 6.4 percent and short sales made up 3.3 percent of total home sales in September 2015. The REO sales share was the lowest since October 2007 when it was 6.2 percent. The short sales share fell below 4 percent in mid-2014 and has remained in the 3-4 percent range since then. At its peak in January 2009, distressed sales totaled 32.4 percent of all sales, with REO sales representing 27.9 percent of that share. While distressed sales play an important role in clearing the housing market of foreclosed properties, they sell at a discount to non-distressed sales, and when the share of distressed sales is high, it can pull down the prices of non-distressed sales. There will always be some level 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 the distressed sales share continues, it will reach that “normal” 2-percent mark in mid-2018.

All but eight states recorded lower distressed sales shares in September 2015 compared with a year ago. Maryland had the largest share of distressed sales of any state at 20.7 percent1 in September 2015, followed by Florida (19.8 percent), Michigan (19.6 percent), Connecticut (19.1 percent) and Illinois (18.2 percent). North Dakota had the smallest distressed sales share at 2.7 percent. Nevada had a 5.8 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 58.9 percentage points from its January 2009 peak of 67.4 percent. While some states stand out as having high distressed sales shares, only North Dakota and the District of Columbia are close to their pre-crisis levels (within one percentage point).

Of the 25 largest CBSAs based on mortgage loan count, Orlando-Kissimmee-Sanford, Fla. had the largest share of distressed sales at 22.7 percent, followed by Tampa-St. Petersburg-Clearwater, Fla. (21.5 percent), Baltimore-Columbia-Towson, Md. (21.2 percent), Miami-Miami Beach-Kendall, Fla. (21.2 percent) and Chicago-Naperville-Arlington Heights, Ill. (20.8 percent). Warren-Troy-Farmington Hills, Mich. had the largest year-over-year drop in its distressed sales share, falling by 6.3 percentage points from 18.8 percent in September 2014 to 12.6 percent in September 2015. Riverside-San Bernardino-Ontario, Calif. had the largest overall improvement in its distressed sales share from its peak value, dropping from 76.3 percent in February 2009 to 11.3 percent in September 2015.

[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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