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REO Shrinkage

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This is the first in a series of posts highlighting some of the findings from an in-depth report on REO trends and outlook that RealtyTrac released at the REO Expo conference on June 13, 2012. To download the full report for free, go to www.realtytrac.com/rebound.

Since the home price bubble burst and home values began trending downward in 2007, there have been 4.3 million new bank-owned homes — also known as REO homes — added to the nation’s real estate inventory.

Monthly REO activity peaked in September 2010 at 102,134, dropped 9 percent in October, when the robo-signing controversy first came to light, and then plunged 28 percent in November 2010. REO activity on a national level has not yet bounced back to the levels seen before the fallout from robo-signing.

REO Sales
Lower REO activity over the past 18 months — even if that lower activity was caused somewhat artificially — has resulted in fewer REO sales. As a percentage of overall sales, REO sales dropped to a post-crisis low of 11 percent in the third quarter of 2011. And although that percentage has gradually risen over the past two quarters up to 14 percent of all sales, it’s still well below the high of 26 percent in Q1 2009.

REO Inventory
Meanwhile, unsold REO inventory has been steadily declining over the past year and half, indicating that sales of REOs are outpacing new REO activity. Unsold REO inventory nationwide has decreased 40 percent since reaching a peak of more than 1 million in January 2011.

The decreasing REO activity and inventory comes despite some recent upticks in properties starting the foreclosure process. U.S. foreclosure starts increased on a monthly basis for three straight months at the beginning of 2012, topping 100,000 in March for the first time since November 2011. After a dip in April, foreclosure starts increased 12 percent in May, up 16 percent from May 2011, the first annual increase after 27 straight months of decreases.

Still, REO inventory continued to decline in May, down 5 percent from the previous month and down 31 percent from May 2011.

Will this downward trend in REO activity and inventory continue for the remainder of 2012, or will the REOs delayed by the robo-signing fallout eventually be pushed through in greater numbers? And will the increase in foreclosure starts that we’ve seen in early 2012 translate into an increase in REO activity down the road?

We’ll explore these questions in future posts, but for now we’d love to hear your opinions. Use the comment section below to share.

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