REO and distressed property; An important part of the US Housing Market

REO and distressed property still an important part of the US housing market

Once a stain on the US housing market, Real Estate Owned property and short sales are now regarded as a critical market indicator and the number increased by 0.7% in August, the latest data shows.

While this type of property is a reminder of the legacy of the housing downturn, real estate investors, seeking discount prices, have transformed what was once undesirable into a more popular way of investing in the market.

The data from Clear Capital shows that the quarterly distressed saturation rose from 15.4% to 16.1% and the firm says that increases in distressed activity leading into winter could shift momentum towards peak distressed saturation levels of 40%. Typically, distressed saturation fluctuates with the seasons and increases in the winter season.Distressed saturation rates have exceeded that of the nation in the West and Midwest, up by 0.9% and 1.2%, respectively, while the largest gains in distressed saturation have been in the South, with a 1.5% increase from 18.6% to 20.1%.The Northeast was the only region to experience a decrease in distressed saturation, where rates dipped 0.3% from 14.3% to 14%.

The report shows that for the past three years, distressed saturation in the San Juan metropolitan area has been steadily increasing, having grown 8% from 9% in 2013 to 17% today but says that this trend is unusual in the current housing environment. ~
The Midwest is the only region to see quarterly gains in price appreciation, nearly doubling from 0.4% to 0.7%. The region still lags behind the West, which experienced declining gains of 0.1% yet still continues to report highest quarterly growth at 1.2%. The South and Northeast appreciation rates remained stagnant, reporting 0.8% and 0.2% growth over the quarter.
There are differences in regional performance. The San Jose and Detroit metropolitan areas both report healthy growth rates of 2.1%. While the South did not see accelerated price gains, continued growth through August could be a sign that this region is on firm footing moving forward.

Distressed saturation continues to be a challenge in today’s housing market, according to Alex Villacorta, vice president of research and analytics at Clear Capital.
‘In fact, today’s traditional housing market continues to be defined by distressed saturation levels. At the start of the downturn, distressed properties were an albatross around housing’s neck but between 2011 and 2013 investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices,’ he explained.

 ‘While the overall effect of higher rates of distressed saturation on the recovery is unknown, one thing is clear, when it comes to housing, REOs and short sales are not a passing fad. Last week’s crash leaves the economy and housing tenuous at best, especially as we move from the promise of the summer buying season,’ he pointed out.
‘The last third of the year will reveal whether the housing recovery can withstand broader global volatility. If investors pull out, oversupply of distressed inventory could bring us back to where we were at the beginning of the downturn. Or, a renewed source of distressed inventory could be all the rage, reviving demand from investors and traditional homebuyers, alike, in an inventory starved market,’ he added.
‘With the summer buying season coming to a close, the maturing housing recovery has encountered an uncertain global and domestic economic picture. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate,’ he concluded.

‘While the overall effect of higher rates of distressed saturation on the recovery is unknown, one thing is clear, when it comes to housing, REOs and short sales are not a passing fad. Last week’s crash leaves the economy and housing tenuous at best, especially as we move from the promise of the summer buying season,’ he pointed out.

Over the same three-year period, nearly all of the major metro markets have experienced steady declines in distressed saturation. In terms of pricing, this near doubling of the saturation rate has corresponded with a rapid change in price declines from a yearly loss of 1.5% in 2013 to a yearly rate of decline of 10.2% today.

Seven of the 15 top performing markets are located in the South, while four of the lowest performing metropolitan areas are in the Northeast.

While this type of property is a reminder of the legacy of the housing downturn, real estate investors, seeking discount prices, have transformed what was once undesirable into a more popular way of investing in the market.

The data from Clear Capital shows that the quarterly distressed saturation rose from 15.4% to 16.1% and the firm says that increases in distressed activity leading into winter could shift momentum towards peak distressed saturation levels of 40%. Typically, distressed saturation fluctuates with the seasons and increases in the winter season.

Distressed saturation rates have exceeded that of the nation in the West and Midwest, up by 0.9% and 1.2%, respectively, while the largest gains in distressed saturation have been in the South, with a 1.5% increase from 18.6% to 20.1%.

The Northeast was the only region to experience a decrease in distressed saturation, where rates dipped 0.3% from 14.3% to 14%.

The report shows that for the past three years, distressed saturation in the San Juan metropolitan area has been steadily increasing, having grown 8% from 9% in 2013 to 17% today but says that this trend is unusual in the current housing environment. ~

Over the same three year period, nearly all of the major metro markets have experienced steady declines in distressed saturation. In terms of pricing, this near doubling of the saturation rate has corresponded with a rapid change in price declines from a yearly loss of 1.5% in 2013 to a yearly rate of decline of 10.2% today.

The Midwest is the only region to see quarterly gains in price appreciation, nearly doubling from 0.4% to 0.7%. The region still lags behind the West, which experienced declining gains of 0.1% yet still continues to report highest quarterly growth at 1.2%. The South and Northeast appreciation rates remained stagnant, reporting 0.8% and 0.2% growth over the quarter.

There are differences in regional performance. The San Jose and Detroit metropolitan areas both report healthy growth rates of 2.1%. While the South did not see accelerated price gains, continued growth through August could be a sign that this region is on firm footing moving forward.

Seven of the 15 top performing markets are located in the South, while four of the lowest performing metropolitan areas are in the Northeast.

Distressed saturation continues to be a challenge in today’s housing market, according to Alex Villacorta, vice president of research and analytics at Clear Capital.

‘In fact, today’s traditional housing market continues to be defined by distressed saturation levels. At the start of the downturn, distressed properties were an albatross around housing’s neck but between 2011 and 2013 investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices,’ he explained.

‘The last third of the year will reveal whether the housing recovery can withstand broader global volatility. If investors pull out, oversupply of distressed inventory could bring us back to where we were at the beginning of the downturn. Or, a renewed source of distressed inventory could be all the rage, reviving demand from investors and traditional homebuyers, alike, in an inventory starved market,’ he added.

‘With the summer buying season coming to a close, the maturing housing recovery has encountered an uncertain global and domestic economic picture. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate,’ he concluded.