Price Declines Slow, But REOs on the Rise

By: Krista Franks Brock 03/05/2012

Last month, year-over-year home price declines were at their lowest level since April 2011, but REO saturation levels rose in three of four regions, according to Clear Capital’s latest Home Data Index.

Whether this REO increase is an anomaly or the beginning of a new wave of REOs as banks pick up the pace now that they’ve reached a settlement with the state attorneys general is yet to be determined.

“With this uptick in REO activity, we’ll be keeping a very close eye on the effects of the Attorneys General settlement with servicers, as it could dramatically change the flow of REO properties moving through the foreclosure process and significant impact values in the near future,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.

Nationally, home prices fell 1.9 percent year-over-year, according to Clear Capital. The West and Midwest experienced the greatest declines, 3.2 percent and 4.3 percent, respectively.

The South experienced a smaller decline of 0.8 percent, while the Northeast was the only region where prices rose year-over-year in February, posting a gain of 0.5 percent.

Prices changed at a slower rate on a quarterly basis in February, though all four regions posted declines for this period.

As with the year-over-year change, the Midwest and West posted the greatest declines, 1.8 percent and 0.4 percent, respectively.

The South followed with a 0.2 percent decline, and the Northeast recorded the smallest price drop, 0.1 percent for the quarter.

REO saturation increased 0.2 percent nationwide for the rolling quarter ending in February, according to Clear Capital.

With the exception of the South, every region experienced and increase in REO saturation over the quarter.

REO saturation increased most in the Midwest (2.1 percent), where price decline was also greatest.

The Northeast followed with a 1 percent increase, though the region still posted the smallest REO saturation rate 8.8 percent in comparison to a national average of 25.8 percent.

The West posted a 0.8 percent rise in REO saturation, and the South was the only region to post a decline in REO saturation, falling 0.6 percent for the quarter.

REO saturation was greatest in the Midwest (32.2 percent), followed closely by the West (32.1 percent) and then the South (23.7 percent).

Clear Capital notes that “[w]ith the exception of this quarter, REO saturation declined over the last year, providing evidence to suggest banks might have put the brakes on processing foreclosures as they waited for further clarity on regulatory guidelines, and in particular, the Attorneys General settlement with servicers.”

“The good news is the improvements in the job market, stronger consumer confidence, and the heightened activity of investors – often with cash – in the lower price tiers. These effects put upward pressure on prices, and could be in play with the resiliency we’re seeing in prices against increasing REO this month,” Villacorta said.

The top performing market for the quarter was Providence, Rhode Island — New Bedford, Massachusetts — Fall River, Massachusetts. Prices rose 7.3 percent in the area.

The Cleveland area was the lowest performing market for the quarter, experiencing a price decline of 9.4 percent for the quarter.