Declining REO Sales Prop Up Home Prices

Posted on Aug 14, 2012

Home prices are rising again because of the slowdown in REO (properties that are bank owned, etc)sales and a decline in the  inventory of seriously delinquent loans in the housing market, according to experts.

“House prices are improving as the share of distressed sales recedes,” according to a new analysis from the Wells Fargo Securities Economics Group.

In its latest ‘Housing Chartbook’ Wells notes that distressed sales have declined to 25% of all sales in June from 35% in January. During the same period, REO sales fell to 13% of all transactions and short sales rose to 12%.  

“In the coming year, we could continue to see an uptick in short sales, while foreclosures stall,” the WFS economists say.

Meanwhile, the shadow inventory is slowly improving and new serious delinquency starts are falling, according to CoreLogic chief economist Mark Fleming.  

“The decline in shadow inventory is a potential indicator of a brighter future in housing,” he says in the latest CoreLogic ‘MarketPulse’ report.  

Nonperforming loans moving out of the shadow inventory and through the foreclosure process are “particularly damaging to prices, especially when they end in REO sales,” Fleming said. “CoreLogic’s research shows that falling REO sales strongly correlate to price appreciation.” 

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