Stabilizing nondistressed home prices, a declining shadow inventory and stronger foreclosure auctions should lead to lower distressed sales and less downward pressure on prices, according to CoreLogic (CLGX). The report notes that while mortgage performance is improving, it is not improving nearly as much as other consumer debt performance. Despite, a bit of positive news in the report, CoreLogic notes that negative equity will remain a strong influence on the market for an extended period of time. In May 2011, the “excluding distressed sales” home price index only dropped 0.4% from a year ago, compared to a decline of 7.4% for the all transactions HPI. "Another very positive sign is that even while including distressed sales, the HPI increased between March and April — the first time in more than six months — and was up again between April and May. These increases represent the resumption of seasonality in home prices and are a positive sign for the market." Despite the whipsaw impact of the federal homebuyer tax credit, state credits and increases in Federal Housing Administration premiums, nondistressed median existing and new prices are back to 2009 levels. On the other hand, median prices for REO and short sale transactions continue to decline and have fallen 10% since 2009, the report said. Price discounts on distressed sales remain high, however, a major impediment to price stabilization, but the good news is that new auction filings have been down significantly since October 2010. Residential shadow inventory — the estimated number of pending supply of distressed properties — declined to 1.7 million units in April 2011, down from 1.9 million units a year ago and down nearly 20% from its peak. "Given that the recent declines in auction filings and current shadow inventory levels are the drivers of future distressed sales, the level of distressed sales should, all things equal, begin to decline late in 2011 and into 2012," the report said. CoreLogic also noted that the geographical sources of distressed properties are shifting and becoming more dispersed. As of December 2008, four of the top five largest distressed sales markets were all located in California and the top five markets averaged a distressed sale share of 68%. As of April 2011, only two of the top five markets are in California and the top five average distressed share was 56%. Miami leads the way in REO price discounts with a 62% REO price discount, followed by Chicago (60%), Detroit (60%), St. Louis (60%) and West Palm Beach (58%). CoreLogic also notes that depreciation in home prices during the last four years has reduced home equity by more than half to $6.1 trillion and caused a rapid increase in the number of foreclosures. Through May 2011, home prices have declined 33% on a cumulative basis since the peak in the spring of 2006. Nearly 11 million, or 23%, of all residential properties with mortgages were in negative equity at the end of the first quarter of 2011, and the negative equity share has been fairly stable over the last year. An additional 2.4 million borrowers had less than 5% equity. Nevada had the highest negative equity percentage with 63% of all mortgaged properties, followed by Arizona (50%), Florida (46%), Michigan (36%) and California (31%). The average negative equity borrower was upside down by $65,000. "Going forward, negative equity will primarily decline by a combination of foreclosures, amortization and, to a lesser extent, price increases," the report said. "While price declines have been a large driver of negative equity, price improvements will most likely not be the antidote anytime soon. …"While the worst is over, it means many of these borrowers will be upside down for an extended period of time, which will result in a long tail of mortgage distress." Write to Kerry Curry. Follow her on Twitter @communicatorKLC.