The percentage of distressed properties in home purchase transactions climbed to its highest level in nearly a year last month, according to a report released Tuesday by Campbell Surveysin conjunction with Inside Mortgage Finance.
The distressed property index tracked by the two companies’ HousingPulse survey indicates that the share of sales transactions involving distressed homes – generally REOs and short sales – climbed from 47.2 percent in December to 49.6 percent in January. In November, the distressed sales share registered 44.5 percent.
According to the report, at the current rate of increase, distressed property transactions could account for the majority of home sales within just a few months.
Already, in the key state of California, the survey found distressed property transactions account for 66 percent of the market. In Florida, distressed property sales are making up 63 percent of the market, while in the combined area of Arizona and Nevada, distressed property transactions are a staggering 72 percent of home sales, according to the industry report.
Comments from real estate agents collected as part of the HousingPulse survey confirmed the growing share of distressed properties.
“I have noticed that less than 40 percent of what is on the market is property that is just ‘For Sale’ and not a short sale or REO,” commented one agent in California.
“We are primarily an REO/short sale market with [only] about 20 percent conventional sale[s] at this juncture,” added an agent in Nevada.
“Short sales occupy 65 percent of market share, REOs occupy 30 percent of market share, non-distressed are 5 percent or less,” reported another agent in Nevada.
The latest HousingPulse survey also found a sharp dip in first-time homebuyer activity last month. The drop came at the same time long-term mortgage rates climbed to above 5 percent and the Federal Housing Administration (FHA) increased the fees associated with low down payment mortgages.
The first-time homebuyer share of home sales was 35.0 percent in January, according to the report, down from 37.7 percent in December. The survey found that FHA lending also took a tumble, falling from 30.2 percent of financing options in December to 27.7 percent in January
Campbell Surveys says the increase in distressed properties, combined with a reduction in first-time homebuyers, is causing downward pricing pressure to build in the market, especially for the categories of damaged REO and move-in ready REO. Over the past 12 months, the report says time-on-market for the REO categories has strongly increased while the average number of offers has decreased.
Also over the past 12 months, the firm’s market data shows that average prices for damaged REO have declined by 16 percent while average prices for move-in ready REO have declined 20 percent. Non-distressed prices have declined only 4 percent while the prices for short sales have been nearly flat.
The HousingPulse survey polls more than 3,000 real estate agents nationwide each month to provide market data on home sales and mortgage usage patterns.