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NEW JERSEY
How REO Sales Impact Home Prices
With markets across the country suffering from pronounced
inventory shortages, it would seem that anything that puts more
homes on the market would be a good thing. A new report by Pro
Teck Valuation Services found delved into that thesis, with an in-
flux of foreclosed properties and REO sales causing very different
results in two studied markets.
e latest installment of Pro Teck's Home Value Forecast
(HVF) examined the state of the market in both Newark and
Jersey City, New Jersey. Citing a recent Wall Street Journal (WSJ)
piece entitled "Why New Jersey's Soaring Foreclosures Are Good
for the Housing Market," Pro Teck set out to test the WSJ's thesis
that New Jersey's skyrocketing foreclosure rate would help offset
the Garden State's housing inventory shortages and generally be
good for the state's housing market.
For Newark, Pro Teck's study found that the local market
would not see much benefit from the high foreclosure rates. Fore-
closures in Newark are at an all-time high, surpassing the 2010
volume. Pro Teck's report explains that "In times of a 'hot' market,
like in 2006 and 2012, the difference in price between REO and
Regular sales begins to tighten, as the REO discount shrinks."
However, the REO discount has been on the upswing in recent
years in Newark, which is depressing local home sale prices.
In contrast, Pro Teck found that Jersey City, while also seeing
increases in REO sales in recent years, REO sales have averaged
less than 10 percent of total sales, thus having less of an impact on
Jersey City's home sale values. In fact, Pro Teck notes that Jersey
City's home prices surpassed the local pre-crash highs more than
three years ago.
According to a 2017 CoreLogic report entitled "United States
Residential Foreclosure Crisis: Ten Years Later," foreclosure
inventory in New Jersey peaked at 89,000 in September 2012.
Between 2007-2016, CoreLogic reported that New Jersey ranked
third among the ten states with the highest peak foreclosure rate,
coming in behind Florida and Nevada, respectively.
