Once REOs, Tight Inventory Now Drives Home Prices

January 7, 2013

Home sellers are facing less competition from foreclosures, which some credit as accounting for the rise in home prices in many markets. Foreclosure often drag home prices down. But tighter inventory will likely be the main driver of home prices this year, according to economists. 

CoreLogic says that home prices are on track to post their first yearly gain since 2006. 

The number of homes in some stage of the foreclosure process has fallen 20 percent from a year ago, according to CoreLogic. Banks are also selling fewer repossessed homes; From January to November of 2012, the REO share of homes on the market fell from 19.6 percent to 11.5 percent. Delinquencies are falling and more banks are opting for short sales and mortgage modifications over foreclosures. 

But the drop in REOs will be less in 2013 because non-judicial states—such as California, Nevada, and Arizona—have now cleared their foreclosure pipeline much faster than in judicial states, like Florida, New York and New Jersey, Sam Khater, CoreLogic’s senior economist, told The Wall Street Journal. 

“The foreclosure crisis has shifted east, to the judicial states, where the pipeline is slow,” says Khater. “The big driver in 2012 in prices increases [sic] was the decline in REOs, but I think the big move-down has already happened. The driving prices in 2013 will be the tighter inventory.”

Source: “Inventory Takes Center Stage as Foreclosures Fade,” The Wall Street Journal (Jan. 4, 2012)