Even though national home prices are down 1% over the past year through April, REO properties are experiencing value increases during the same time period, according to the analytic provider Clear Capital.
Bank-owned homes have seen a 5.5% increase in prices from a year ago, while fair market homes dropped 2.9%, Clear Capital said in its monthly home data index market report. Clear Capital measures home values on a median price per square foot basis.
REO saturation—the portion of national REO sales relative to total sales—was higher for the third straight month throughout the country despite the jump in home values. Usually REO saturation falls if there is an increase in prices, but this inverse relationship only occurred in the Midwest, which saw its REO saturation rise 6% and home values fall 2.7%.
Clear Capital said demand for real estate-owned assets has been a driving force for the rise in REO prices, especially since the Federal Housing Finance Agency initiated the REO-to-rental idea last summer.
“There has been quite a bit of buzz in the housing industry surrounding turning REOs into rentals. Our data suggests early activity from these programs could be starting to take effect,” said AlexVillacorta, director of research and analytics at Clear Capital. “Should investor interest continue to drive the expansion of REO-to-rental programs over the next several months, there could be a significant impact on the market overall in terms of providing a rising floor to home values.”
The surge in REO values has helped diminish the national 0.2% quarter-over-quarter loss that took place through April.
For the past five months, price movement at the regional level has settled in under 1% on a quarterly basis, with the Northeast, South and West regions all slightly up by 0.2%, 0.6% and 0.5%, respectively.
Only the Midwest has experienced significant losses as homes have dropped 2.7% of their value over the last rolling quarter.
“Home prices continue to show relative strength in April with virtually no change over the short term and tapering losses over the longer term,” Villacorta said.
Six of the top 15 highest performing markets were in the west, led by Phoenix which was 3.8 percentage points greater than the second city on the list, Miami. However, Clear Capital said there is still a long road to recovery for Phoenix home prices as its peak to current values are down nearly 58%.
As for the lowest performing markets, improvements occurred as the average quarterly decline was only 3.1% in April compared to 4.1% in March. Milwaukee was the hardest hit MSA with a quarterly loss of 12.5%, followed by Columbus, Ohio at 7.5%. Nine of the 15 worst performing markets were located in the South, while the Midwest contributed five.
