An increasing proportion of bank-owned property sales are putting downward pressure on home prices, according to a study by Lender Processing Services (LPS).
The company said bank-owned properties (REOs) accounted for more than 60 percent of home sales in Michigan and Nevada during the first half of the year; that number was also above 50 percent in hard-hit California and Nevada.
“REO sales account for as much as 60 percent of housing activity in some states,” said Nima Nattagh, Ph.D., senior vice president, LPS Applied Analytics, in a release. “Our study contains specific data to show this is causing precipitous drops in home values.”
In Michigan, non-REO home prices have dropped by more than 26 percent since peaking in 2005, and when REO sales are included, that decline approaches 47 percent.
Conversely, in Massachusetts, where just 14 percent of first half homes sales were REO sales, home prices excluding REOs have fallen by 15 percent, and just 19 percent when REOs are included.
“This study clearly shows that when foreclosure levels are high and REO sales dominate the majority of transactions, their impact on the rest of the market should be taken into account accordingly,” said Nattagh.
In 2006, at the peak of the housing boom, REO sales accounted for just about three percent of overall sales in California, largely because even the least desirable property could somehow still scrap up some appreciation.