With the deepening mortgage crisis came a flood of foreclosed homes repossessed by lenders. The longer these houses sit vacant, they become cesspools for blight and drive down neighboring property values. And evenwhen these homes are successfully sold off, the price reductions required to move them can drag down surrounding home prices with them.
Lender Processing Services, Inc. (LPS) released a nationwide study Thursday that reveals the impact of foreclosure sales on home prices.
According to Nima Nattagh, Ph.D., an SVP at LPS Applied Analytics, sales of foreclosed REO properties account for as much as 60 percent of housing activity in some states.
Based on LPS’ analysis, Michigan and Nevada are the highest ranking states in REO sales, with more than 60 percent of home buys being bank-owned properties in the first half of 2009. California and Arizona followed, with REO sales comprising 50 percent.
“Our study contains specific data to show [a spike in REO sales] is causing precipitous drops in home values,” Nattagh said.
In Michigan, where REO sales accounted for 64 percent of sales in the first six months of 2009, non-REO home prices have dropped by more than 26 percent since their peak in 2005. However, when REO sales are included, the decrease in home prices approaches 47 percent.
In contrast, in Massachusetts, where only 14 percent of homes sold during the first half of the year were REO sales, home prices, excluding REOs, have dropped by 15 percent. When REO sales are included the home price decrease climbs only slightly to 19 percent.
“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,” said Nattagh.
In 2006, at the peak of the most recent housing boom, REO sales accounted for a little more than 3 percent of overall sales in California, the nation’s largest housing market. Today, LPS says REO sales account for more than 52 percent of all sales in California – and prices have plummeted.
LPS says in its report that the Northeast and Northwest regions of the country do not appear to have been as hard hit as the West and Midwest states, where a prevalence of subprime and exotic mortgage products, as well as general economic downturn, have elevated mortgage delinquencies to an all-time high.
“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,” Nattagh said.
Using a proprietary home price index (HPI) that gauges changes in the value of homes that have sold at least twice, LPS evaluated the influence of REO sales on regional housing markets. The company’s study 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.
Lender Processing Services, Inc. (LPS) released a nationwide study Thursday that reveals the impact of foreclosure sales on home prices.
According to Nima Nattagh, Ph.D., an SVP at LPS Applied Analytics, sales of foreclosed REO properties account for as much as 60 percent of housing activity in some states.
Based on LPS’ analysis, Michigan and Nevada are the highest ranking states in REO sales, with more than 60 percent of home buys being bank-owned properties in the first half of 2009. California and Arizona followed, with REO sales comprising 50 percent.
“Our study contains specific data to show [a spike in REO sales] is causing precipitous drops in home values,” Nattagh said.
In Michigan, where REO sales accounted for 64 percent of sales in the first six months of 2009, non-REO home prices have dropped by more than 26 percent since their peak in 2005. However, when REO sales are included, the decrease in home prices approaches 47 percent.
In contrast, in Massachusetts, where only 14 percent of homes sold during the first half of the year were REO sales, home prices, excluding REOs, have dropped by 15 percent. When REO sales are included the home price decrease climbs only slightly to 19 percent.
“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,” said Nattagh.
In 2006, at the peak of the most recent housing boom, REO sales accounted for a little more than 3 percent of overall sales in California, the nation’s largest housing market. Today, LPS says REO sales account for more than 52 percent of all sales in California – and prices have plummeted.
LPS says in its report that the Northeast and Northwest regions of the country do not appear to have been as hard hit as the West and Midwest states, where a prevalence of subprime and exotic mortgage products, as well as general economic downturn, have elevated mortgage delinquencies to an all-time high.
“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,” Nattagh said.
Using a proprietary home price index (HPI) that gauges changes in the value of homes that have sold at least twice, LPS evaluated the influence of REO sales on regional housing markets. The company’s study 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.
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