Duane Andrews co-founded Clear Capital in 2001 as a logical offshoot of REONetwork.com, a searchable database of real estate-owned (REO) vendors. Andrews refined his financial skills as a certified public accountant within the Financial Management Group at KPMG Peat Marwick. For this episode of In This Corner, Andrews discusses if home prices are finally stabilizing and in which markets. HW: Housing prices made quarterly gains of 7.3% in your last report. Is a pricing rebound on the way? Duane: "Housing prices have certainly rebounded from the record lows we saw last winter, and as we reported in our July market report, the national trend has increased for the first time since 2006. While these increases are a welcome sign after the declines we experienced over the past three years, what’s more encouraging is that many markets are returning to their historical seasonal variations—something we haven't seen since the downturn began. Prices may flatten or even decrease in the traditionally slow winter season, but the recent gains in house prices signal we have finally returned to more stable environments." HW: Which markets are showing the quickest recovery, and what separates them from the stragglers? Duane: "Generally, the markets showing the quickest recovery are the ones that started their declines well before the national decline, and also saw some of the biggest drops in the housing crisis. Areas such as Sacramento and Cleveland saw declines from their peaks to troughs of 59% and 75%, respectively. But they also saw their peaks in late 2005 as opposed to the national peak in late 2006. These dramatic changes in values, along with the first time buyer incentives and consistent rent prices, created demand from new home buyers and investors. "One of the main differences between the recovering markets and some of the stragglers, such as Las Vegas and Orlando, is that the slower markets to recover are typically in areas where speculative home buying made up the majority of the sales during the run up. Speculative activity fueled the new housing markets in these cities, dramatically increasing the stock of homes. Now that many of these homes are on the market as REOs, the excess inventory needs to be absorbed in order to establish a healthy supply/demand mix. For example, the Las Vegas market has lost 64% since it peak and has yet to reach its trough." HW: Are foreclosure and REO sales taking up too much of the housing activity or should we take what we can get? Duane: "Foreclosure and REO sales are certainly making up a significant proportion of the housing activity with the national REO saturation rate at 30%, where the REO saturation rate is defined as the percentage of REOs sold as compared to all properties sold in the last 90 days. I don't believe they are taking up more than they should since the severe decline in prices has erased many people's home equity prohibiting traditional home sellers from listing their homes. However, our recent trends are showing an encouraging shift in the proportion of distressed sales to fair market with the number of national REO sales decreasing 23% and non-distressed sales increasing 20% from the previous rolling quarter." HW: There is a lot of housing data from a lot of sources. How is Clear Capital's data evaluation different from others? Duane: "Clear Capital's Home Data Index (HDI) is the most up-to-date market data available on the market. In addition, our index enables our customers to make decisions, not only on how a state or MSA is performing, but also by the ZIP code, and even down to the block group level. These incredible break-throughs are possible through effective harnessing of one of the most robust data sets in the country. Our unique data set combines vast amounts of county recorder and assessor records in addition to our internal property data that arrives in real time. County records are often associated with delays from the time a sale closes to the time it is made publicly available, but our daily operations allow us to fill in the latency gap by providing real time looks at market activity. This combination allows us to have a current and comprehensive look at market activity around the country; and in turn, enables us to produce market analytic models bi-weekly without being subject to the time delay." HW: How has the role of third party valuations changed in light of heightened distress assets? Duane: "The role of third party valuations has become more of an integral component in property transactions, whether it be REO sales, loan modifications, or short sales. Real estate markets are so volatile across the country that a need exists for both accurate point valuations, and now more than ever, an understanding of local market trends. This has become crucial for loan servicers to make the right decision when setting REO list prices, evaluating loan modifications and negotiating short sales." HW: Is it frustrating for appraisers to give a valuation in a time of constantly falling house prices? Duane: "In these tough economic times appraisers are under the microscope. Just one year ago there were some who pointed toward the actions of a few, stating the industry was generally overvaluing properties, thus contributing to the 'overheating' of the market. Now, in just a very short time, appraisers are being criticized for 'coming in too low,' thereby restricting the real estate market’s recovery. "An appraiser's job is not easy. That's why they call it a profession. By definition, the value of a property is a fluid concept that changes given one's point of view. On one hand, you have unfortunate owners who lose their jobs, can’t make their payments and are forced into situations where they may have fewer options and must now sell or be foreclosed. They may need to 'price' their homes below value to sell to buyers willing to participate. "On the other hand, their neighbors who still have their jobs and current mortgages, have no need to be concerned with the perceived current value of their homes. To them, it is still worth what it was last year or when they purchased it. The appraiser’s job frustration comes in distinguishing the difference in value and price, especially when distressed sellers make up significant proportions of the market. This requires balancing market data in a skillful way, which appraisers are trained to do in depreciating as well as appreciating markets."