REO resales in CA

An estimated 23,000 real estate owned property (REO) resales occurred in the third quarter of 2012 (3Q 2012). That’s 38% fewer REO resales than one year ago. Unsurprisingly, this translates into a sharp drop in REO market share. REO resales accounted for 20% of all California resale activity in 3Q 2012, down from 34% one year ago. In a healthy market, REO resales are around 7% of resales.

Looking forward, the number of NODs and Trustees Deeds will slip until interest rates rise, likely in 2015. Expect an increase going into 2017, then a rapid decline as prices lift many homeowners into positive equity.

See our latest analysis of the distressed market conditions [here].

Chart last updated 10/17/12

Total REO Resales Quarterly*

3rd Quarter 2012 2nd Quarter 2012
3rd Quarter 2011
3rd Quarter 2010
23,000 34,000 37,000 36,000

Total REO Resales Annually*

Total REOs 2011
Total REOs 2010
Total REOs 2009
Total REOs 2005
147,600 152,500 202,000

REO Resales as a Percentage of Total CA Home Sales*

3rd Quarter 2012 2nd Quarter 2012
3rd Quarter 2011
3rd Quarter 2010
20% 28%

Review the trends in California REO resales to adjust your future market targets.

Tracking REOs as the economy recovers

The above chart tracks the number of California residential properties resold quarterly by lenders who acquire ownership by foreclosure. These properties are also commonly called “Real Estate Owned” properties (REOs).

REO resales rise and fall as a function of economic well-being based on multiple factors, including the employment status and wealth of homeowners, FRM rates, ARM financing, lender solvency and efficiency, and the price of homes. Lately lenders have become more inclined to grant short sales, causing foreclosures (and thus REO resales) to fall. Still, the inventory of REOs on the market remains around four times higher than normal. REO sales will continue to be driven by the wave of foreclosures that heralded the recently-ended Great Recession.

As the chart above indicates, a significant percentage (just below 40%) of all homes sold since 2008 have been REOs. The ratio of REO sales to total sales ordinarily rests at approximately 7%, as was the case in 1999. However, as the job market begins to recover and lenders regain solvency, the number of NODs and Trustees deeds is expected to remain strong, if not rise, well into 2014. It will then head for an equilibrium rate of below 10% REOs of all sales in the MLS marketplace, most likely in the 2017 period.


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