At the end of 2007 distressed transactions (REO and Short Sale) represented 9.3% of total existing home sales.  During 2008 this percentage exploded reaching 32.0% in January of 2009.  

It is the stated thesis of this blog that as long as distressed transactions are occurring in material numbers, housing prices will fall in real and nominal terms from present valuations.  Delinquencies and foreclosures are establishing new records and will be prevalent, due to the peculiarities of Affordable Mortgages, through at least 2012.  Given this dynamic, housing prices will fall and sustained, real appreciation is unlikely for several years.

In response to rising delinquencies and a dramatic increase in the percentage of distressed transactions, the Obama Administration implemented a series of foreclosure mitigation policies designed to stem the rising tide of foreclosures. 

The coordinated effort (paired with home buying incentives) temporarily prevented foreclosures, caused the distressed share of existing sales to fall to 23.1%, and allowed national house prices to rise.

As predicted though, mitigation efforts failed to solve the fundamental challenges afflicting the housing market and broader economy.  Delayed, but inevitable, distressed transactions are now flooding the market, in real and relative terms, forcing prices lower.

The following illustrates intervention designed to forestall foreclosures and demonstrates that economic fundamentals have overwhelmed their distortive influence.




Distressed properties represent a high and rising component of total housing transactions.  In just two months REOs and Short Sales have increased from 23.1% to 29.4% of total existing sales (the steepest incline seen during the crisis).  This trend is likely to continue, as record foreclosures are processed in 2010, and bodes poorly for housing prices.

(figures used are close approximates of First American CoreLogic data)