Stabilizing nondistressed home prices, a declining shadow inventory and stronger foreclosure auctions should lead to lower distressed sales and less downward pressure on prices, according to CoreLogic.
The report notes that while mortgage performance is improving, it is not improving nearly as much as other consumer debt performance.
Despite, a bit of positive news in the report, CoreLogic notes that negative equity will remain a strong influence on the market for an extended period of time.
In May 2011, the “excluding distressed sales” home price index only dropped 0.4% from a year ago, compared to a decline of 7.4% for the all transactions HPI.
“Another very positive sign is that even while including distressed sales, the HPI increased between March and April — the first time in more than six months — and was up again between April and May. These increases represent the resumption of seasonality in home prices and are a positive sign for the market.”
Price discounts on distressed sales remain high, however, a major impediment to price stabilization, but the good news is that new auction filings have been down significantly since October 2010.
Residential shadow inventory — the estimated number of pending supply of distressed properties — declined to 1.7 million units in April 2011, down from 1.9 million units a year ago and down nearly 20% from its peak.
“Given that the recent declines in auction filings and current shadow inventory levels are the drivers of future distressed sales, the level of distressed sales should, all things equal, begin to decline late in 2011 and into 2012,” the report said.
“Going forward, negative equity will primarily decline by a combination of foreclosures, amortization and, to a lesser extent, price increases,” the report said. “While price declines have been a large driver of negative equity, price improvements will most likely not be the antidote anytime soon. …”While the worst is over, it means many of these borrowers will be upside down for an extended period of time, which will result in a long tail of mortgage distress.”