Sales of real estate owned properties (REOs) made up more than 60% of all home sales in Michigan and Nevada during the first half of the year, according to a recent nationwide study conducted by Lender Processing Services Inc. (LPS).
‘Our study contains specific data to show this is causing precipitous drops in home values,’ says Nima Nattagh, senior vice president of LPS Applied Analytics.
Michigan and Nevada are the highest-ranking states in REO sales, followed by California and Arizona, where REO sales comprise about 50% of all sales. By comparison, REO sales accounted for little more than 3% of California home sales in 2006.
The study also notes that the Northeast and Northwest regions of the country do not appear to have been as hard-hit as the West and Midwest states.
‘While REO sales activity has increased significantly across all regions in the country, there is clearly a dichotomy between states that have seen unprecedented levels of mortgage delinquency and those where the impact of the current housing crisis has been much more moderate,’ says Nattagh.
The study further demonstrates that in states with a relatively high share of REO sales, the impact of these sales on the rest of the market has been much more pronounced.
In Michigan, where REO sales accounted for 64% of sales in the first six months of 2009, non-REO home prices have dropped by more than 26% since their peak in 2005. However, when REO sales are included, the decrease in home prices approaches 47%.
In contrast, in Massachusetts, where only 14% of homes sold the first six months of 2009 were REO sales, home prices, excluding REO sales, have dropped by 15%. When REO sales are included, the home-price decrease only climbs slightly, to 19%.
‘This study clearly shows that when foreclosure levels are high and REO sales dominate the majority of transactions, their impact on the rest of the market should be taken into account accordingly,’ adds. Nattagh.