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» VISIT US ONLINE @ DSNEWS.COM COVER STORY MARKET PULSE It's All About the 'Where' Although price patterns for single-family REOs overall are improving, all value trends are local, and they do not apply uniformly to the entire country, says Tony Pistilli, EVP and chief appraiser for Axios Valuation Solutions. "Values POINT— COUNTERPOINT "The trend we are seeing is that the median sales price for REOs and foreclosures has been on the upswing during the last few months," said Dr. Yanling Mayer, senior research economist for FNC, Inc. "It's exciting to see that happening along with rising prices for non-foreclosure home sales." FNC analyzes market data across 30 major metropolitan areas for its monthly residential price index. The mortgage technology company's 2012 year-end report shows single-family REO and foreclosure sales have steadily declined and were down to 18.1 percent of total home sales in Q4 2012. That compares with an REO and foreclosure home sale share of 26.5 percent in Q1 2012 and 24.2 percent in Q4 2011. Studies show recovery varies by region. Dr. Mayer says Phoenix is leading the nation with foreclosure sales down from 29 percent of total sales to a mere 12 percent, and some foreclosures are selling at a premium to estimated market value. Home prices in Phoenix on non-foreclosure sales are up 26.2 percent from their post-crisis trough. The Atlanta market is also on an upswing with the share of foreclosure sales dropping from 33 percent to 26 percent and foreclosure price discounts—measured as the difference between a property's estimated market value and sale price—dropping to pre-crisis levels. Non-foreclo- LEGISLATIVE REVIEW REO Values Rebound sure home prices in Atlanta increased more than 6.9 percent in 2012. Some parts of the country, however, aren't doing as well. Chicago, for example, has underperformed the rest of the country with no significant declines in foreclosed sales or foreclosure price discounts in the last 12 months, according to FNC's analysis. Chicago home prices are up just 1 percent annually versus an average of 5 percent among the nation's largest cities. Dr. Mayer attributes the upswing in REO housing sales to more buyers entering the market. In addition to individual buyers, she says institutional investors are buying distressed properties in bulk, rehabbing them, and then renting them quickly at very profitable price points. This trend has been a driver influencing the increase in REO values. Although REO discounts have contracted significantly in many areas, including California, Florida, Nevada, and Arizona, foreclosed properties with deep price cuts can still be found in certain states. "Michigan and judicial foreclosure states offer the largest discounts," Dr. Mayer said. "A lot of properties in these states have been there so long, they have deteriorated. City governments want to sell them to recoup lost tax revenues, and so they offer deep discounts to buyers." Overall, the prognosis for continuing recovery looks good. "[T]he market was dreadful for so long and now … a lot of buyers realize that those distressed sales are a good investment and may not be available much longer," Dr. Mayer said. are very local, even within different parts of a city," he explained, "and statistics can sometimes be misleading. If you say values have increased 10 percent in both San Francisco and Detroit, that's not an accurate comparison because the price of housing is so different." Ten percent of $10,000 is not the same as 10 percent of $4 million, he says. Typically, in areas where values declined the most—Florida, California, Arizona, and Nevada, for example—prices are appreciating faster than in places like New Orleans and Detroit, Pistilli says. "Six years after Hurricane Katrina, there are still blocks and blocks with no homes, and there is limited incentive to rebuild there," he explained. "Similarly, the city of Detroit is trying to sell properties for as little as $1 and is redrawing the city limits to exclude some of the more distressed areas." He says although Detroit is experiencing some increases in values, prices there fell so far that they may never fully recover, exacerbated by the city's bankruptcy. Values in other distressed areas, however, are coming back. "It's dependent on location and the economy in that area," Pistilli said. "The biggest increases seem to be in some of those areas that experienced the biggest decreases." He cites a study of 20 cities showing sales increases ranging from 2 percent in Chicago to 23 percent in Phoenix. Pistilli, who is a subject matter expert for the Appraisal Foundation in the area of declining markets, says most inflated REO inventories were due to overbuilding and points to the Florida condo market as a good example. Consequently, he believes the events of the past few years will lead to greater demand from lenders and investors for more accurate broker price opinions (BPOs) and appraisals and more expansive market analyses. "Overall, that applies to the TECH FOCUS Bank-owned property values sank in the wake of the housing crisis, pulling prices of non-distressed properties down with them—by as much as 60 percent in some of the hardest-hit markets. The good news is that the overall price structure for single-family REOs has now stabilized and is generally improving, and housing markets overall are benefitting. MARKET PULSEBEST PRACTICES T hink of it as a continuum, ranging from good to, well, not so good. REO value assessments fall along that continuum, differing in various parts of the country and influenced by the economic conditions present in those areas as well as the mindsets and perceptions of local buyers. 55

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