A Tale of Two Housing Markets: There’s REO, and Then There’s Everything Else

Proving that even within a single local housing market, sales trends can be more complex than they might otherwise seem, new data is suggesting that distressed assets can move housing markets — when prevalent enough.

A monthly housing report from real estate analytics firm Radar Logic Inc., released Monday morning, found that in March of this year, so-called motivated sales — defined as liquidity-driven sales of real-estate owned and similar transactions — had managed to split apart more than a few local markets.

In other words, there’s REO, and then there’s everything else.

Los Angeles, for example, saw motivated/distressed sales made up a whopping 29.2 percent of the market in March 2008, up from 2.9 percent one year ago. And these motivated sellers are just that: the price per square foot of motivated sales transactions has declined 11 percent since the start of 2008, according to Radar Logic, while non-motivated sellers have seen prices drop far less drastically, just 1.8 percent.

With the percentage of motivated sales in Los Angeles increasing nearly 20 percent since the beginning of this year alone, the overall price-per-square foot for the MSA has fallen 6.7 percent in the same time period, Radar Logic said.

Pricing trends in local areas such as Phoenix are affected strongly by REO and foreclosures. Click for larger view. (Source: Radar Logic)

In Phoenix, the area MSA has plunged by 22.7 percent year-over-year. But, as with Los Angeles, the trends differ once you tease out the “motivation effect.” Motivated sales were 24.5 percent of transactions in March 2008, up from just 2.8 percent one year earlier, Radar Logic reported. Price-per-square-foot for distressed sales have fallen 9.1 percent this year, while non-distressed sales have seen prices fall a more muted 3.3 percent.

Like other MSAs where distressed assets are prevalent, motivated sellers are focused in lower-priced neighborhoods. In Phoenix, for example, a quartile analysis found that distressed sales account for 27 percent of sales in the lowest-price quartile; that percentage falls to 14 percent in the top-priced tier.

But the fact that REO and foreclosure activity is prevalent at all in the upper quartiles is an emerging trend, suggesting that the downward pressure on prices may actually increase in the months ahead (see an earlier HW exclusive on jumbo REOs).

While Radar Logic CEO Michael Feder said that his firm does not provide forecasts, he did say in an email to Housing Wire that it seemed “clear that the impact of mortgages is having a powerful effect on home equity values, both in terms of troubled borrowers offering discounts and the difficulty buyers may have getting credit constraining purchases.”

Most key markets in California saw motivated sales comprise a growing portion of transaction volume, as well. In Oakland, distressed sales were 35 percent of the housing market in March, RadarLogic said; in Sacramento, that number soared to nearly 50 percent. Nineteen percent of San Jose sales were distressed during the month, while San Franscisco held up the best — only 8.7 percent of the market in the city was considered a motivated sale by RadarLogic.

RadarLogic publishes a set of housing prices, on a per-square-foot basis, that serve to drive the Residential Property Index, or RPX; the RPX is one of the tradeable property derivatives out there (the other being the Case-Shiller based housing futures).

For more information, visit http://www.radarlogic.com.

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