By Robbie Whelan
If real estate trends were animals in the Chinese lunar calendar, last year might have been called the “Year of the Disappearing REO.” If real estate data-providerCoreLogic CLGX 0.00%is right, this year will be the “Year of the Tight Inventory.
Last week, the Journal reported that U.S. home prices are on track to post a yearly gain for the first time since 2006, according to one closely watched national price index.
Behind these price gains—which come as good news to millions of homeowners counting on the value of their houses to carry them into retirement, or those looking to sell or borrow against their homes—is rising demand. Investors, first-time homeowners and move-up buyers alike are all re-entering the market as the economy slowly improves and interest rates remain low.
But another reason prices are climbing is that foreclosures are becoming less relevant in the market. CoreLogic reports that about 1.2 million homes, or 3% of all U.S. homes that have a mortgage, were in some stage of the foreclosure process as of November. This figure, known as the foreclosure inventory, is down 20% from a year ago, when 1.5 million, or 3.5% of all mortgaged homes in the country, were going through the foreclosure process.
Also down is the share of home sales that come from what is known as real estate-owned properties, or REO, which refer to homes that have been repossessed by banks through the foreclosure process. According to CoreLogic, the REO share fell from 19.6% to 11.5% between January and November of 2012. To wit: banks are selling fewer repossessed homes, which means less competition for sellers who are not in foreclosure, and eventually, rising prices.