One-Third of Home Sales Distressed

Hold on to your hats: Distressed home sales made up nearly a third of all home sales in the U.S. in January.

Such sales, including short sales and real estate-owned (REO) transactions, accounted for 29 percent of sales -- reaching highs not seen since January 2009, when home prices were at their weakest, according to a report from First American CoreLogic.

A rise in distressed sales typically indicates a decrease in home prices, as the chart, left, illustrates. So are home prices headed back down?Not necessarily.

Usually, average home prices drop when distressed home sales become more common. In recent years the worst months for home prices and the worst month for distressed home sales both came in early 2009, according to CoreLogic. Of course in January 2009 all of the economic indicators, for housing and the economy in general, pointed gloomily downward.

But by January 2010 the housing-market indicators were coasting sideways. Home prices have been flat for months, according to the S&P/Case-Shiller Home Price Indices.

Also, the number of new foreclosure actions fell 10 percent in January, according to RealtyTrac. The increase in distressed home sales probably represents sales by banks that seized properties months ago but waited to sell them to avoid flooding the market. If so, it's a good sign from a long-term perspective that these homes are finally selling. The sooner they find new owners, the better.

There were nearly a million sales of distressed homes over the last 12 months, including 740,000 sales of "Real Estate Owned" homes, meaning homes that had been seized by banks in foreclosures. Another 234,000 homes were sold by their owners for less than the value of the mortgages in transactions called "short sales." The largest portion of distressed sales were in Riverside, CA (62%), Las Vegas (59%) and Sacramento, CA (58%).
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