Nationally, the proportion of short sales and REO sales rose 2.2 percentage points in Q1 2015, according to Clear Capital.

The nation has not observed an increase this large since Q1 2012, when distressed saturation hit its peak nationwide at 38%. The rise in distressed property sales in Q1 2015 comes on the heels of home price moderation across the country since the end of 2013 and throughout 2014.

The national distressed (short sales and REOs) saturation rate of 18.9% distributes regionally with 13.7% of sales in the West, 23.2% in the South, 15.1% in the Northeast, and 22.1% in the Midwest.

“The rise we’re seeing in distressed saturation across the board is another sign that the legacy issues from the housing collapse are still being processed today, and suggests that homeowners are still trying to find a foothold in a slowly improving economy,” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. ”The judicial process has clearly delayed the processing of many distressed homes, and as a result the steady, and in some areas, high proportion of distressed activity is showing signs of dampening overall growth rates. Historically, we have observed distressed saturation increase during the winter months, but given the other headwinds already blowing against the broader market, this will warrant close monitoring once the traditional home buying season returns.”

Quarter-over-quarter, all four regions saw an increase in distressed saturation. The West increased by 1.4 percentage points, the South by 2.1, the Northeast by 2.6, and the Midwest with the largest gain of 3.8 percentage points.

Investors seeking low prices with high yield took advantage of distressed opportunities, helping some of the recession’s hardest hit metros. They reduced high rates of distressed saturation by creating demand in the absence of traditional home buyers at the start of the recovery. In turn, this helped drive up prices in key recovering MSAs (Metropolitan Statistical Areas).

With the West seemingly tapped out of these deals, the distressed migration moves south to hotspots like Florida.

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(Source: Clear Capital)

It should come as no surprise that the Northeast and Midwest, the two regions with the largest increase in distressed saturation, are made up of 78% and 67% of judicial processing states, respectively.

Not so sunny in Florida. Florida is home to four of the five Top 50 MSAs with the highest percentage of distressed sales. Florida’s distressed saturation rate of 30.6% is higher than that of the entire Southern region by 7.4 percentage points.

Of the Top 50 metro areas, Orlando has the highest percentage of distressed saturation in Q1 2015 at 37%. Over the past three quarters, distressed saturation has slowly ticked up by at least one percentage point per quarter. Conversely, price growth over the past three quarters has begun to slow, 0.5% in the current quarter, down from 3% one year ago.

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(Source: Clear Capital)

Miami’s distressed saturation rate of 29.9% has also increased over the last three quarters. Naturally, price growth has also slowed in Miami, with its current Q1 2015 rate of growth at 1.1%, down from 3.8% a year ago.

Florida is a judicial-only state, where the foreclosure process is slower than in non-judicial states. The uptick in distressed saturation and drastically moderating prices in the past year could mean that there is a backlog of shadow inventory hitting these judicial markets. If the supply continues to increase faster than demand, this area could see prices continue to fall, creating more uncertainty in overall home prices yet also potentially offering a housing bonanza with deals for investors and traditional home buyers alike.

The rise in Q1 foreclosure rates suggests an abundance of distressed inventory still available in the market. The pace of the judicial process is sure to obstruct the flow of distressed inventory through the market. Judicial states, like Florida, could expect to be backed up for some time, belaboring a healthy recovery in certain markets.