The real estate recovery has been extremely uneven. In some markets, prices have risen by well into the double digits. However, many of these markets are in areas such as Nevada, California and Florida, where home values dropped by more than a third when the housing bubble burst.

Foreclosures, and the distressed home sales that are part of the process of selling foreclosed inventory, were driven primarily by two factors. The first was subprime mortgages, often marketed with low monthly payments during the first few years of the loan, followed by much higher payments, or balloon payments that could represent most of the entire value of the mortgage. The other was unemployment levels rarely reached in the years since the Great Depression. The national rate climbed to more than 10%. However, in some cities, the figure was above 15%.

Distressed home sales are still remarkably high in some cities — more than 20% of total sales. Distressed sales are defined as short sales plus sales of homes for which the lender or its agent has possession, or real estate owned (REO).

Distressed homes sales are a two-edged sword. They help clear the inventory of unsold homes, which in theory should improve the price owners get for their houses in a period of low supply. One the other hand, the sales of distressed homes often are made below market value as banks and other financial institution attempt to clear their books of unwanted real estate.

Not surprisingly, the markets that had the highest percentage of distressed sales in the 12 months that ended in January were dominated by markets that collapsed in 2008, 2009 and 2010. Of the eight with distressed sales of more than 20% of the total, five are in central California, Florida or the Detroit area.

Market                       12 Month Sales Through January         Percentage Distressed Homes

Chicago                       100,155                                                            29.5%

Orlando                       57,057                                                             27.6%

Atlanta                         102,988                                                          25.1%

Tampa                          70,385                                                            25.1%

Warren, Mich.             47,730                                                           24.7%

Riverside, Calif.           73,428                                                          23.2%

St Louis                         48,509                                                          22.2%

Sacramento                  39,220                                                          21.8%

Of these eight markets, the Chicago area had the greatest month’s supply of distressed homes at 9.5, followed by Tampa at 8.2 and Orlando at 8.1. Warren area had a bit less than three months supply of distressed homes.

By state, the greatest share of distressed sales in February occurred in Michigan (31.4%), Nevada (28.1%), Illinois, (26.5%) Florida (24.7%) and Georgia (23.4%).

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