Distressed home sales, which include REOs and short sales, increased 0.6% from December 2015 to January 2016, and accounted for 11.2% of total home sales nationally in January, reports Molly Boesel of CoreLogic.

Year-over-year, distressed sales were down 3.3 percentage points. Within the distressed category, REO sales accounted for 7.8% and short sales accounted for 3.4% of total home sales in January 2016. The REO sales share was 2.9 percentage points below the January 2015 share and is the lowest for the month of January since 2007. The short sales share fell below 4% in mid-2014 and has remained in the 3-4% range since then.

Distress sales peaked in January 2009 at 32.4%, with REO sales representing 27.9% of that share. While distressed sales play an important role in clearing the housing market of foreclosed properties, they sell at a discount to non-distressed sales, and when the share of distressed sales is high, it can pull down the prices of non-distressed sales. There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%. If the current year-over-year decrease in the distressed sales share continues, it will reach that “normal” 2% mark in mid-2018.

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