We’re not always contrarians here at HW, but some recent buzz surrounding yesterday’s pending home sales report from the NAR has caught the eye of a few industry types that we know. In particular, the Calculated Risk blog weighs in with a suggesting that home sales are in much bigger trouble than Monday’s surprisingly good reading might otherwise suggest. The blog’s eponymous author takes issue with the suggestion that housing markets are stabilizing, and says that a huge surge in REO within key housing markets is skewing the NAR data:

This surge in REO sales suggests that when the Case-Shiller prices are released for May and June, well, look out below for prices in these low end neighborhoods. That is what “aggressive” pricing means! But what about the market “leveling out” or “stabilizing”? This depends on how you view sales. If we looked at existing home sales ex-REOs, we’d see that sales are still collapsing. And based on the recent MBA data, there is a flood of foreclosures coming. So maybe it will appear that sales are leveling out as the market is taken over by foreclosure sales, but that just puts more pressure on prices.

In other words, foreclosures sales taking off will likely put pricing pressure on non-foreclosure property sales. There is evidence for this theory — Housing Wire was among the only media outlets to parse a recent report from Radar Logic that found clear evidence of a pricing split between “distressed asset sales” and everything else. Los Angeles, for example, saw motivated/distressed sales make up a whopping 29.2 percent of the local market in March, Radar Logic reported — worth noting, since the price per square foot of motivated sales transactions has declined 11 percent since the start of 2008, while non-motivated sellers have seen prices drop just 1.8 percent in comparison. In other words, there is alot of REO out there, and much of it is aggressively priced relative to the rest of the housing stock; this stock moving will boost pending sales numbers, but it will also pressure prices on the rest of the housing market as well. With that in mind, the conclusion at Calculated Risk seems to make sense to us:

So the two key points from the Pending Home sales report are that prices are probably falling quickly, especially in the low end areas, and that sales are being propped up as REO sales start to dominate that existing home market. Neither point is good news for housing.