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the latest ANALYTICS Or ig i nat ion Major Distressed Sales Markets The Bright Side of Seeing Biggest Price Gains Tight Credit High-performing markets are marked by high levels of distressed sales. I The M Report | 53 se c on da r y m a r k e t t's no secret underwriting standards have tightened in recent years, and while many decry the heightened standards for making homeownership less accessible to some Americans, CoreLogic economist Sam Khater pointed out in a recent report that heightened standards are undoubtedly impacting delinquency rates for the better. "While there has been much consternation about underwriting being too tight in the context of forthcoming mortgage regulations, one underappreciated outcome has been the very good performance of mortgages during the last few years," Khater said in an article titled "Tight Credit Results in Flawless Performance," which was part of CoreLogic's most recent MarketPulse. The serious delinquency rate, which includes mortgages 90 or more days past due, in foreclosure, or REO, stands at 5.4 percent as of July, according to CoreLogic. While still significantly higher than the historic norm of 1 percent, the current rate has come a long way since its peak of 8.5 percent in January 2010, according to CoreLogic data. Taking an even closer look, Khater examines 2013 vintage loans and compares them to vintages from years past. Over the first half of this year, the serious delinquency rate for loans originated this year was six basis points, according to Khater. This is down drastically from the 108 basis points for loans originated in 2007, which is the worst year in the 2000s, Khater noted. The current rate is also better than the rate recorded for 2003, a year when home prices were rapidly increasing. Serious delinquencies for 2003 vintage loans was 15 basis points, according to Khater. Serious delinquencies for 2013 loans are also down from 10 basis points among loans originated last year. "This clearly indicates that the most recent mortgage vintages are pristine relative to even the good-performing years of the early 2000s," Khater said. a na ly t ic s these markets, according to Clear Capital. This is part of what Clear Capital has termed the "FirstIn-First-Out" recovery, in which hard-hit markets have made the strongest and quickest comebacks in the housing recovery. "The Phoenix MSA [metropolitan statistical area] has embodied this behavior as one of the first markets to exhibit a sustained recovery alongside its high levels of distressed sale saturation," Clear Capital said in a released statement. "After significant gains, the market's growth is now moderating with quarterly growth of 2.4 percent, less than half of the current annual rate of growth when annualized," Clear Capital continued. In fact, Phoenix, having spent close to a year at the top of Clear Capital's highest-performing list, has slid off the list completely. Nationally, price gains are starting to let up as well, according to Clear Capital. National home prices increased 1.8 percent in the rolling quarter ending in November, almost half Strict lending conditions have hamstrung the recovery, but the results aren't all negative s e r v ic i ng W hile analysts across the industry are reporting waning price gains as we head toward winter, Clear Capital also points out another interesting—and perhaps counterintuitive—trend occurring in the housing market. Prior to the recovery, high saturations of distressed sales correlated with falling prices, but today's market reveals a switch such that high levels of distressed sales are taking place alongside higher price gains. Currently, distressed sales are more prevalent among higherperforming markets, according to Clear Capital's Home Data Index Market Report. The average annual price growth among the 15 top-performing markets is 19.2 percent, and distressed sales make up 24.5 percent of sales in these markets. In contrast, prices in the lowest-performing markets average 4.9 percent over the year, and distressed sales make up a lower 17.2 percent of sales in of the previous quarter's 3.3 percent gain."Though some market observers may take this as a sign of a deflating bubble, we see this as a natural and welcomed evolution on the horizon of the new housing landscape," said Alex Villacorta, VP of research and analytics at Clear Capital. "Understandably, many current homeowners would like to see hot gains continue for some time to come," he added. "Market participants, however, are better served by a cooler and more sustainable recovery." On an annual basis, prices rose 10.8 percent year-over-year during the rolling quarter ending in November, according to Clear Capital. This is down from an 11 percent gain in the previous quarter. REOs and short sales made up 21.6 percent of home sales during the three-month period ending in November, which according to Clear Capital is "substantially lower" than the 41 percent high reached in 2011. On an annual basis, the Northeast and South posted single-digit price gains as opposed to the West and Midwest's double-digit gains. Prices in the Northeast increased 6 percent over the year. In the South, prices were up 8.7 percent. In the West and Midwest, prices rose 19.3 percent and 10 percent, respectively. On a more local level, Clear Capital found eight of the 15 highest-performing major metro markets over the quarter were located in California with San Francisco, Riverside, and Sacramento topping the list. The lowest-performing metro, and the only one to post a quarterly decline, was the Houston, Texas, metro, which experienced a 1.4 percent price decline over the quarter. Birmingham, Alabama, and Honolulu followed with price gains of 0.3 percent and 0.4 percent, respectively.