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Distressed Sales Accounted for 11 Percent of Homes Sold Nationally in January 2016

Most of the Largest Metros Experienced Decreases in Distressed Sales Shares

Molly Boesel    |    Mortgage Performance

  • Of total sales in January 2016, distressed sales accounted for 11.2 percent and real estate-owned (REO) sales accounted for 7.8 percent
  • The REO sales share was 20.2 percentage points lower than it was at its peak of 27.9 percent in January 2009
  • Only two of the nation’s largest 25 Core Based Statistical Areas (CBSAs) showed year-over-year increases in their distressed sales shares in January 2016

Distressed sales, which include REOs and short sales, accounted for 11.2 percent of total home sales nationally in January 2016, down 3.3 percentage points from January 2015 and up 0.6 percentage points from December 2015.

Within the distressed category, REO sales accounted for 7.8 percent and short sales accounted for 3.4 percent of total home sales in January 2016. The REO sales share was 2.9 percentage points below the January 2015 share and is the lowest for the month of January since 2007. 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 January 2016 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 19.9 percent[1] in January 2016, followed by Connecticut (19.1 percent), Florida (18 percent), Michigan (18 percent) and Illinois (17.4 percent). North Dakota had the smallest distressed sales share at 2.5 percent. Nevada had a 5.1 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 59.6 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 (each within one percentage point).

Of the 25 largest CBSAs based on mortgage loan count, Baltimore-Columbia-Towson, Md. had the largest share of distressed sales at 20 percent, followed by Chicago-Naperville-Arlington Heights, Ill. (19.8 percent), Orlando-Kissimmee-Sanford, Fla. (19.8 percent), Tampa-St. Petersburg-Clearwater, Fla. (19.7 percent) and Las Vegas-Henderson-Paradise, Nev. (14.2 percent). Denver-Aurora-Lakewood, Colo. had the smallest distressed sales share among this group of the country’s largest CBSAs at 2.8 percent. Only two of the largest 25 CBSAs had year-over-year increases in their distressed sales share: Baltimore-Columbia-Towson, Md. was up by 1.1 percentage point, and Nassau County-Suffolk County, N.Y. was up by 0.7 percentage points. Las Vegas-Henderson-Paradise, Nev. had the largest year-over-year drop in its distressed sales share, falling by 5.4 percentage points from 19.5 percent in January 2015 to 14.2 percent in January 2016. 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 10.5 percent in January 2016.

1 The distressed sales share for states and CBSAs was calculated using sales from the past 12 months.

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