REO Prices Increase, Fair Market Prices Drop, Home Values Stabilizing

04/30/2012 By: Esther Cho 

According to data from Clear Capital, over the last year, REO prices have increased 5.5 percent, while fair market prices dropped 2.9 percent. The real estate data provider explained that demand for REOs is most likely causing the increase in prices and named Carrington Holding Company, Amherst Securities Group, and Waypoint Financial as examples of investors purchasing single-family REOs with the purpose of converting them into rental properties.

“There has been quite a bit of buzz in the housing industry surrounding turning REOs into rentals. Our data suggests early activity from these programs could be starting to take effect, with national REO-only home price gains on a price per square foot basis vastly outpacing fair market prices on a national level,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.
According to data from the Census Bureau, rental vacancy rates have also seen a steep decline, with the rate at 8.8 percent in the 2012 first quarter, a significant decline from the 2010 first quarter, when the vacancy rate was 10.6 percent.
Villacorta also added that if investor interest continues to expand the REO-to-rental programs over the next several months, this could lead to a significant impact on the market in terms of increasing home values.
REO saturation, or the portion of REO sales relative to total sales, increased on a quarterly basis in April for the third straight month. Nationally, REO saturation increased quarterly from 25.3 percent in December 2011 to 27.9 percent in April 2012.
The Midwest regions saw the greatest quarterly increase of REO saturation, increasing to 37.1 percent in April compared to 31.1 percent in December.

In the West, REO saturation increased from 31 percent to 33.3 percent during the same quarterly period, and in the South, saturation increased from 24.2 percent to 25.3 percent. In the Northeast, REO saturation remained low compared to other regions; the region posted a quarterly increase from 8.4 percent to 10.2 percent.
Presenting further evidence that the housing market may be stabilizing, Clear Capital released its Home Data Index (HDI), which showed that overall, home prices fell 0.2 percent on a quarterly basis, and 1 percent year-over-year.
The data gathered was good through April 2012, and the HDI includes both fair market and REO transactions.
Based on regions, the Midwest was the only one that posted quarter-over-quarter losses, declining 2.7 percent. The West (+0.5 percent), Northeast (+0.2 percent), and South (+0.6 percent) all posted small quarterly gains. Year-over-year, all regions posted loses except for the Northeast, which saw a 0.7 percent increase.
Compared to the March 2012 report, the West and South posted improvements, decreasing their year-over-year losses by 1.4 and 0.3 percentage points, respectively.
The Midwest was the only region not following the positive trend and posted a yearly loss of 0.2 percent compared to the previous month’s report.
As for metro areas, hard hit market Phoenix posted the greatest quarterly price gains and yearly increases at 8.4 and 12.5 percent, respectively.
Miami posted the second highest quarter-over-quarter increase at 4.6 percent, closely followed by Tampa (+4.4 percent); Richmond, Virginia (+4.4 percent); and Washington, D.C. (3.6 percent).
On a yearly basis, Orlando posted a 9.8 percent increase, while Miami saw a 9.1 percent gain.
Milwaukee saw the greatest quarterly drop in prices, decreasing 12.5 percent. Columbus had the second greatest quarterly drop at -7.5 percent, followed by Birmingham, Alabama (-6.1 percent), Memphis (-5.4 percent), and Detroit (-4.2 percent).
Year-over-year, prices in Birmingham, Alabama fell 13 percent, Memphis 11.4 percent, Milwaukee 9.4 percent, Philadelphia 8.3 percent, and Columbia 6.2 percent.