Housing Markets Becoming Less Saturated with REOs: Reports

Thu, Aug 5, 2010


By: Carrie Bay

The nation’s REO stock fell 0.6 percent in May to 524,000 properties, according to analysis released by Barclays Capital.

In addition, the research firm estimates that housing’s shadow inventory – which Barclays defines as the supply of homes that are 90 or more days delinquent or in the process of foreclosure, meaning they are nearing REO status – declined by 2.3 percent to 4.02 million properties.

A separate study released by Clear Capital supports the assumption that indeed, there are fewer REOs influencing the market. The real estate valuation firm reports that REO saturation – the percentage of bank-owned homes sold as compared to all properties sold – is steadily declining.

Data from Clear Capital shows that REO saturation dropped 22.7 percent nationally during the May to July period. The company says that’s nearly 20 percentage points less than the REO saturation peak hit back in the first quarter of 2009.

Fewer REOs, coupled with a boost in overall sales from the homebuyer tax credit, have given home prices a lift, according to Clear Capital’s study.

Home prices nationally gained 7.9 percent during the May to July rolling quarter, Clear Capital reports. On a year-over-year basis, prices were up 8.1 percent as of the end of July, but the analysts at Clear Capital note that the latest annual reading represents a slow-down from the 8.8 percent yearly increase recorded in June.

“While quarterly gains are showing strong momentum across the country, these recent price advancements are just the latest turn in a volatile housing market that has seen ‘W’ shaped price trends over the last two years,” said Dr. Alex Villacorta, Clear Capital’s senior statistician.

Villacorta said that despite the up and down behavior of prices since the worst of the housing downturn, national prices are still up 13.6 percent from the trough, providing a cushion against potential future declines and the start of a double-dip.

Future price declines are exactly what’s being forecast. The analysts at Barclays said in their report, “With the expiration of the homebuyer tax credit, we expect the elevated pace of distressed liquidations to depress prices by 7 percent over the next three quarters.”

In an appearance on NBC’s “Meet the Press” over the weekend, former Federal Reserve Chairman Alan Greenspan added his own caveat to the mix. Greenspan warned that a decline in home prices could upset the modest economic recovery, with that double-dip spreading beyond just property values and sending the United States down another sharp recessionary slope.

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