HousingPulse Distressed Property Index Hits 49.6% in January While First-Time Homebuyers Scale Back Their Purchase Activity
WASHINGTON, D.C. (February 22) – In an ominous sign for the still fragile U.S. housing market, the percentage of distressed properties in home purchase transactions climbed to the highest level in nearly a year in January. Meanwhile, first-time homebuyer activity fell sharply last month – the result of more expensive financing options and tightened mortgage underwriting standards.
These are the major findings of the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, conducted this month.
Perhaps the biggest news in the January data was a sharp rise in the HousingPulse Distressed Property Index or DPI, a key indicator of the health of the housing market. The DPI, or share of total transactions involving distressed properties, climbed from 47.2% in December to 49.6% in January. The increase was a continuation of a trend as the DPI registered just 44.5% back in November.
At the current rate of increase, distressed property transactions could account for the majority of home sales within just a few months. Already, in the key state of California, distressed property transactions account for 66% of the market. In Florida, distressed property transactions account for 63% of the market. And in the combined area of Arizona and Nevada, distressed property transactions are a stunning 72% of home sales.
Comments from real estate agents collected as part of the HousingPulse survey confirmed the growing share of distressed properties. “I have noticed that less than 40% of what is on the market is property that is just ‘For Sale’ and not a short sale or REO,” commented one agent in California. “We are primarily an REO/short sale market with (only) about 20% conventional sale at this juncture,” added an agent in Nevada. “Short sales occupy 65% of market share, REO's occupy 30% of market share, non-distressed are 5% or less,” reported another agent in Nevada.
The latest HousingPulse survey also found a sharp dip in first-time homebuyer activity last month. The drop came at the same time long-term mortgage rates climbed to above 5 percent and FHA hiked the fees associated with low downpayment mortgages. The first-time homebuyer share of home sales was 35.0% in January, down from 37.7% in December. FHA lending also took a tumble, falling from 30.2% of financing options in December to 27.7% in January.
The increase in distressed properties, combined with a reduction in first-time homebuyers, is causing downward pricing pressure to build in the market, especially for the categories of damaged REO and move-in ready REO. Over the past 12 months, time on market for the REO categories has strongly increased while the average number of offers has decreased. Also over the past 12 months, average prices for damaged REO have declined by 16% while average prices for move-in ready REO have declined 20%. Non-distressed prices have declined only 4% while the prices for short sales have been nearly flat.
For more information on the survey, contact John Campbell at Campbell Surveys at (202) 363-2069 or firstname.lastname@example.org.