Distress Sales Market Share to Rise

Distress sales, foreclosures and short sales will increase their market share during the fourth quarter as the tax-credit induced sales bump disappears and buyers return to bargain shopping.

Just as sales in the Cash for Clunkers program abruptly declined after it expired, CoreLogic, in the first issue of its new bi-monthly US Housing and Mortgage Trends report, expects distress sales to regain the market share of about 35 percent they enjoyed before the tax credit began to make an impact on the market a year ago.  In June, distress sales fell to 24 percent of the market, the lowest level since November 2009.

REOs accounted for the lion’s share of the decline.  They accounted for only 16 percent of all sales in June, down from a peak of 24 percent in February.  Short sales have averaged roughly 7 percent of all sales over the past seven months.

CoreLogic expects non-distress sales to be very soft for the balance of the year and into next year, not just because of reduced demand but also because one out of nearly four homeowners with a mortgage is upside down and can’t afford to sell.

Following the pattern set by the Cash for Clunkers and Cash for Appliances stimulus programs, the drop in home sales was expected as consumers moved their purchases forward.  What’s different about housing, CoreLogic said, is that negative equity will create a strong headwind moving forward.

Negative equity declined from 24 to 23 percent from the first to the second quarter, but the smaller percentage of foreclosures was the primary driver in the change, not price appreciation, since only homes with equity realized increases in value during the period. 

By analyzing 5,000 large zip codes, CoreLogic found that non-distressed sales have declined nearly twice as much in areas with high negative equity, demonstrating a clear relationship between negative equity and the decline in non-distress sales.

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