Without distressed sales, prices would have fallen only 0.9 percent in 2011, an indication of the impact of distressed sales on home prices in 2011 according to CoreLogic, a leading provider of information, analytics and business services.

In December, home prices decreased 1.4 percent on a month-over-month but excluding distressed sales, prices would have posted their posted its first month-over-month gain since July 2011, rising 0.2 percent. The December drop in home prices follows a decline of 4.3 percent in November 2011 compared to November 2010. Excluding distressed sales, year-over-year prices declined by 2 percent in November 2011 compared to November 2010. Distressed sales include short sales and real estate owned (REO) transactions.

“While overall prices declined by almost 5 percent in 2011, non-distressed prices showed only a small decrease. Until distressed sales in the market recede, we will see continued downward pressure on prices,” said Mark Fleming, chief economist for CoreLogic.

Highlights as of December 2011

• Including distressed sales, the five states with the highest appreciation were: Montana (+4.4 percent), Vermont (+4.0 percent), South Dakota (+3.1 percent), Nebraska (+2.5 percent) and New York (+1.7 percent).
• Including distressed sales, the five states with the greatest depreciation were: Illinois (-11.3 percent), Nevada (-10.6 percent), Georgia (-8.3 percent), Ohio (-7.7 percent), and Minnesota (-7.5 percent).
• Excluding distressed sales, the five states with the highest appreciation were: Montana (+7.7 percent), South Dakota (+3.5 percent), Indiana (+3.3 percent), Alaska (+3.1 percent), and Massachusetts (+2.9 percent).
• Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-9.7 percent), Minnesota (-5.2 percent), Arizona (-4.9 percent), Delaware (-4.2 percent) and Michigan (-3.5 percent).
• Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to December 2011) was -33.7 percent. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -24.0 percent.
• The five states with the largest peak-to-current declines including distressed transactions are Nevada (-60.0 percent), Arizona (-51.9 percent), Florida (-50 percent), Michigan (-43.7 percent), and California (-43.5 percent).
• Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 81 are showing year-over-year declines in December, one more than in November.

New originations ended the year down 29.3 percent from 2010, lower than since 2007, and December activity was down 2.7 percent from December 2010. Through November, originations totaled about 5.6 million, down 1 million from 2010, according to the December Mortgage Monitor report released by Lender Processing Services today.

Mortgages originated in 2010-11 have 90-day default rates that were lower than any vintage since 2005, before the housing crash and the implementation of tighter underwriting standards. Ninety day default rates are highest for loans originated in 2006, immediately before lending standards were tightened, and are lowest for loans originate in 2010 and 2011.

December origination data also shows that recent prepayment activity - a key indicator of mortgage refinances - has remained strong, with 2008-09 originations, high credit score borrowers and government-backed loans having benefited the most from recent, historically low interest rates.

Foreclosure starts plummeted in 2011, nearly 40 percent below 2010 for the year as a whole and down 3.7 percent from November to December.

LPS found that half of all loans in foreclosure in judicial states have not made a payment in more than two years. Foreclosure inventories in judicial states are two anmd a half times those in non-judicial states, and the gap continues to widen. Foreclosure sale rates in non-judicial states stood at approximately four times that of judicial foreclosure states in December.

However, pipeline ratios (the time it would take to clear through the inventory of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales) have declined significantly in judicial states from earlier this year.

Other findings from the LPS report:

Total U.S. loan delinquency rate: 8.15 percent

Month-over-month change in delinquency rate: 0.0 percent

Total U.S foreclosure pre-sale inventory rate: 4.11 percent

Month-over-month change in foreclosure pre-sale inventory rate: -1.3 percent

States with highest percentage of non-current* loans: FL, MS, NV, NJ, IL

States with the lowest percentage of non-current* loans: MT, WY, SD, AK, ND

*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

In fact, so many investors are winning sales with cash and shorter closing timelines that they can offer lower bids, which may be may be depressing prices, especially on distressed sales, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

In December the overall proportion of cash buyers in the housing market surged to a record 33.2 percent, up from 29.6 percent a year earlier. Some 74 percent of investors used all cash to buy homes last month. Investors accounted for 22.8 percent of home purchases in December 2011, up from 22.2 percent a month earlier.

The combination of all cash and shorter closing timelines convinced many sellers to accept lower bids. The survey found that cash buyers are able to bid significantly lower - and successfully - on many properties because they offer a shorter and more reliable closing timeline. This is particularly true for bids on distressed properties, because mortgage servicers selling foreclosed properties or real estate owned generally prefer transactions that can settle within 30 days.

The total share of distressed properties in the housing market in December, as represented by the HousingPulse Distressed Property Index (DPI), continued at a high level of 47.2 percent, using a three month moving average. This is the 24th month in a row that the DPI has been above 40 percent.

While investor bids may not be the first offers accepted, they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems. Appraisals below the contracted price are a common reason for mortgage denials. Most mortgage financing timelines are now in excess of 30 days.

Real estate agents responding to the survey commented on low bids from investors. “Investors usually offer 10 percent-20 percent below list up to a price of $250K. First time homebuyers are (offering) close to list (price) as are current homeowners. Investors want 2-4 weeks to close …Financing buyers end up with 6- 8 weeks plus to close,” reported an agent in Arizona.

“Investors are very aggressive and expect to see 15 percent-20 percent off list, they will close in 30 days or less and most are cash buyers. First time homebuyers are in a market that sometimes sell for over list price which is difficult ‘at first’ for them to understand,” reinforced another agent in California.

“In competitive offer situations, cash offers prevail for the most part because of the common knowledge of lender closing issues. Cash sales close in 21-30 days. FHA sales close in 45 to 60 days,” reported an agent in New Jersey.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.

In some markets with high foreclosure saturation rates, foreclosure inventories will cause temporarily price swings as inventories rise and fall, but even in these cities, in the long run, local economies will be the key.

That’s how Ingo Winzer sees the year ahead. In 1990 Winzer created Local Market Monitor because there wasn’t anything like it and developed of the National Review of Real Estate Markets, which analyzed conditions in 100 US Markets using such economic data as home values, employment growth, and population growth. More recently he created Equilibrium Home Prices, which have proved valuable in assessing real estate market risk during the last two economic cycles. He’s more interested in what makes local markets tick than broad national forecasts that may be irrelevant to local professionals, consumers and investors.

“The evidence is now pretty clear that a sustained economic recovery is underway, although housing markets won’t feel much benefit until next year. Consumers are in no particular hurry to buy a house because they don’t see home prices going up. Homeowners - as opposed to investors - would rather wait to pay a higher price than admit to their friends that they bought too soon. NO market has yet seen an increase in prices,” Winzer said in his January economic outlook.

“Local price increases of 6 percent are going to be difficult, but 3 to 4 percent are more likely. Some markets, like Atlanta, that are struggling with employment are going to have a hard time while others will do markedly better,” he told Real Estate Economy Watch.

Local Market Monitor is popular with investors who rent out their holdings because of its local data and forecasts on rents. Noting that more people today want to rent than buy, Winzer believes that many retirement and second home markets that have been flooded with foreclosures are going to take a long time–ten years or more-for prices to recover.

“In other markets where investors are active like Miami it’s not so bad because there is great demand,” he said.

Housing markets are going to continue to improve with job growth, even at just 2 percent a year, and economic growth will determine rental increases as well as home values. Overall rents are going to reflect population flows. “In a recession people tend to sit still. When things pick up, people are more willing to move to where there are jobs,” he said.

For long term investors, however, projecting rental cash flow ten or twenty years down the road is difficult even at the local level because of the sensitivity of rents to local economic conditions.

“My advice to the long term investor is to reduce risk by buying a more expensive property in a desirable neighborhood where you will be able to charge a premium rent. In lower cost properties, rents may become comparable to the monthly costs of owning a home. Renters in a lower cost property are more likely to buy than those in a higher cost property,” he advised.

Last year the total number of properties affected by foreclosure filings fell 34 percent year-over-year. Foreclosure activity in 2011 was 33 percent below the total in 2009 and 19 percent below the 2008 total, according to RealtyTrac’s year-end report.

At the same time, the average processing timeline for foreclosures grew to 348 Nationwide and over 800 days in judicial states like New York, New Jersey and Florida. State laws, regulations and lender procedures put in place following the 2010 robo-signing scandal account in part for the delays.

Separately, ForeclosureRadar reported today that Nevada’s new foreclosure law, which caused foreclosure starts to plummet in October, is now impacting foreclosure sales as well. “Nevada’s new foreclosure rules appear on track to bring a near complete halt to foreclosures in that state,” said Sean O’Toole, CEO of ForeclosureRadar.

The national foreclosure rate fell to 1.45 percent of U.S. housing units (one in 69) that had at least one foreclosure filing during the year, down from 2.23 percent in 2010, 2.21 percent in 2009, and 1.84 percent in 2008.

“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac. “The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages - particularly in states with a judicial foreclosure process.

“There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010.”

December activity hit a 49-month low, scheduled auctions up in fourth quarter. Foreclosure filings were reported on 205,024 U.S. properties in December, a decrease of 9 percent from the previous month and down 20 percent from December 2010. December’s total of filings was the lowest since November 2007 - a 49-month low. December Default notices (NOD, LIS) decreased 19 percent from the previous month and were down 23 percent from December 2010; Scheduled foreclosure auctions (NTS, NFS) decreased 12 percent from the previous month and were down 24 percent from December 2010; and bank repossessions (REO) increased 10 percent from the previous month but were still down 12 percent from December 2010.

Foreclosure filings were reported on 586,133 U.S. properties in the fourth quarter, a 4 percent decrease from the previous quarter and down 27 percent from the fourth quarter of 2010. Fourth quarter default notices were down 6 percent from the previous quarter and down 22 percent from the fourth quarter of 2010; scheduled foreclosure auctions increased 4 percent from the previous quarter but were still down 32 percent from the fourth quarter of 2010; and REOs decreased 11 percent from the previous quarter and were down 24 percent from the fourth quarter of 2010.

Nevada, Arizona, California post top state foreclosure rates for year More than 6 percent of Nevada housing units (one in 16) had at least one foreclosure filing in 2011, giving it the nation’s highest state foreclosure rate for the fifth consecutive year despite a 31 percent decrease in foreclosure activity from 2010. Nevada foreclosure activity dropped 35 percent from the third quarter to the fourth quarter. Despite a 28 percent drop in foreclosure activity from November to December - caused largely by a 41 percent drop in scheduled foreclosure auctions - Arizona registered the nation’s second highest state foreclosure rate for the third year in a row, with 4.14 percent of its housing units (one in 24) with at least one foreclosure filing in 2011.

California also experienced a substantial month-over-month drop in initial foreclosure notices in December - default notices there were down 38 percent from the previous month - but the state still registered the nation’s third highest foreclosure rate for all of 2011. One in every 31 California housing units (3.19 percent) had at least one foreclosure filing during the year, down from 4.08 percent in 2010 and 4.75 percent in 2009.

Georgia posted the nation’s fourth highest state foreclosure rate, with 2.71 percent of housing units (one in 37) with at least one foreclosure filing in 2011, and Utah posted the nation’s fifth highest state foreclosure rate, with 2.32 percent of its housing units (one in 43) with a foreclosure filing during the year.

Other states with 2011 foreclosure rates ranking among the nation’s 10 highest were Michigan (2.21 percent), Florida (2.06 percent), Illinois (1.95 percent), Colorado (1.78 percent), and Idaho (1.77 percent).

U.S. properties foreclosed in the fourth quarter took an average of 348 days to complete the foreclosure process, up from 336 days in the third quarter and up from 305 days in the fourth quarter of 2010. The length of the average foreclosure process has increased 24 percent from 281 days in the third quarter of 2010, when lenders began to re-evaluate foreclosure procedures in earnest as the result of the so-called robo-signing controversy.

The average foreclosure process in New York has increased 37 percent during the same time period, and New York properties foreclosed in the fourth quarter took an average of 1,019 days to complete the foreclosure process - the longest of any state. New Jersey had the nation’s second longest average foreclosure process, at 964 days, and Florida the nation’s third longest average foreclosure process, at 806 days. Foreclosure activity in both these states dropped more than 60 percent from 2010 to 2011. All three states with the longest foreclosure timelines employ the judicial foreclosure process.

Texas continued to register the shortest average foreclosure process of any state, at 90 days - still an increase from 86 days in the third quarter and from 81 days in the fourth quarter of 2010. Other states with average foreclosure process among the nation’s shortest in the fourth quarter were Delaware (106 days), Kentucky (108 days), Virginia (132 days), and Louisiana (134 days).

In Realtor.com’s November ranking of 152 markets, Atlanta ranked 150^th in terms of year-over-year list prices, with 7.65 percent decline. The latest S&P/Case-Shiller Home Price Indices report, home values in Atlanta fell 5 percent from September to October and 11.7 percent from October 2010 to October 2011, leading the nation in Case-Shiller’s monthly report.

The foreclosure wave began last spring, accompanied by a drop in home sales. High unemployment, economic fears and tight lending standards for buyers were blamed. Hopes were high that the crisis would pass quickly.

“The number of sales has increased over the last three months. We have every reason to believe the numbers are going to rise in the next couple of months,” said Mitch Kaminer, president-elect of the Atlanta Board of Realtors told Inman News last May. “The market is stable. We’re waiting for things to start coming back up. Absorption of foreclosures and short sales will start that ball up.”

Instead, the situation has worsened. Prices fell further and by September were down 9′8 percent year over year. REOs reached 42.2 percent of all home sales by the end of the year..

When the Case-Shiller numbers hit the media December 27, it made big news. In a subsequent commentary on Housing Views, the Standard and Poor’s blog, David Stiff, chief economist and vice president at Fiserv, tried to sort things out.

“Taking a closer look at Fiserv’s real estate transaction data for Atlanta, I determined that there was a significant increase in the sales volume of bank-owned properties in August, September and October in the Atlanta metro area.

“Changes in the volume of bank-owned sales can cause changes in average prices that will be reflected in the S&P/Case-Shiller Home Price Indexes. And, if bank-owned sales are concentrated within one price segment (e.g., low-priced homes), shifts in bank-owned sales volumes can cause the S&P/Case-Shiller indexes to shift relative to the aggregate indexes. During the housing bubble collapse, in many metro area markets, the proportions of bank-owned sales vs. all sales have fluctuated substantially over time (but not consistently across different metro areas). Bank-owned sales volumes also tend to drop less in winter months (than regular sales volumes), so their proportion of total sales often increases from October through March, leading to larger seasonal swings in the S&P/Case-Shiller Home Price Indices in markets with large numbers of foreclosed properties.

“Atlanta non-REO sales volumes also increased in August and September, but on a smaller percentage basis than REO sales. Consequently, the proportion of REO sales increased. Changes in the REO proportion of sales have been causing fluctuations in average prices in many markets, especially those with large foreclosure inventories,” he said.

With the new year, Atlanta hopes its trials are over but the jury is still out. Inventory plunged to historic lows last year and is now down 28 percent year-to-year, but prices are still falling at last report.

The Office of the Comptroller of the Currency reported yesterday that the increase in new foreclosures and the increase in average time required to complete foreclosures sales has resulted in the number of foreclosures in process increasing by 4.1 percent, or 1,327,077 loans.

During the quarter, services also exhausted alternatives to foreclosure for the large inventory of seriously delinquent mortgages working through the loss mitigation process. The increase in new foreclosures and the increase in average time required to complete foreclosure, the OCC said.

The OCC said mortgage servicers “lifted voluntarily moratoria implemented in late 2010,” when the robo-signing controversy initially came to light. Newly initiated foreclosures, however, declined 11.8 percent from third quarter 2010.

“This quarterly increase results from the large number of seriously delinquent mortgages working their way through the loss mitigation process toward foreclosure. The number of foreclosures in process increased 0.5 percent from the previous quarter and 7.6 percent from a year earlier as the length of time required to complete foreclosure lengthens,” the agency said.

Overall, the performance of first-lien mortgages serviced by large national banks and federal savings association was stable, but delinquencies remained elevated during the third quarter of 2011.

At the end of the third quarter of 2011, 88 percent of the 32.4 million loans in the portfolio were current and performing at the end of the third quarter, almost unchanged from the previous quarter. The percentages of mortgages that were 30-to-59 days delinquent and mortgages that were seriously delinquent (loans 60 or more days delinquent or delinquent mortgages to bankrupt borrowers) did not change from the previous quarter. However, both categories of delinquencies have declined from a year earlier.

The OCC report includes about 62 percent, or 32.4 million, of all first-lien mortgages in the U.S. worth $5.6 trillion in outstanding balances.

Counseled homeowners were at least 67 percent more likely to remain current on their mortgage nine months after receiving a loan modification cure, according to the Urban Institute. A small part of this effect is attributable to the impact of counseling on the size of monthly payment reductions. However, a significant part is attributable to other positive impacts of counseling, such as helping homeowners improve their financial management skills and assisting them in managing relationships with servicers.

The study also found that National Foreclosure Mitigation Counseling made it more likely that homeowners would receive a loan modification cure in the first place - increasing by at least 89 percent the relative odds of modification cures for counseled homeowners compared to non-counseled ones. The government’s Homeownership Affordable Modification Program amplified this positive effect. In the period before HAMP, 8 percent of homeowners receiving counseling assistance had modification cures, compared to 5 percent who did not receive counseling. Post-HAMP, 17 percent of homeowners receiving counseling assistance had modification cures, compared to 9 percent without.

HUD’s restored $40 million housing counseling funds will be distributed as grants to hundreds of programs and state housing finance agencies across the countries. Roughly $36 million will be used for helping homeowners avoid foreclosure, thwarting mortgage scams and teaching buyers how to purchase or rent a home. Another $4 million will be used for reverse mortgage counselors.

The Urban Institute’s three-year evaluation the National Foreclosure Mitigation Counseling program used a representative NFMC sample of 180,000 loans and a comparison non-NFMC sample of 155,000 loans to isolate the impact of NFMC counseling on loan performance through December 2010.

Are the structural changes that are reshaping Florida’s real estate markets a bellwether for the nation as a whole?

Jack McCabe, the outspoken Deerfield Beach, FL economist who foresaw the last decade’s real estate boom and bust now has a dire scenario for the nation that’s based on Florida’s experience.

“We are headed to a rental society and a slow- to no-growth economy unless the housing market, the foundation of American spending and a major part of U.S. gross domestic product, is revived,” he wrote in an October column in the Sarasota Herald-Tribune titled “The American Dream Recovery Program: a working solution that puts the American people first.”

In an interview with Real Estate Economy Watch, McCabe outlined the Florida trends that are changing the very nature of homeownership, and the fabric of community life in the state.

“Florida is becoming a different place to live. There is a big paradigm shift in how homeownership is viewed,” he said.

Foreclosures are still flooding Florida’s markets. The state’s judicial system has some 371,009 open foreclosure cases. Another 60,000 or so are in default. There are some 1.24 million potential foreclosures and short sales, McCabe estimates. The percentage of homeowners has dropped more in the last 10 years than any time in history.

McCabe advocates a program of systematic modifications beginning with principal write downs based on re-appraisals for current market value, a new tax credit for new homes and revived purchases of mortgage backed securities by Fannie and Freddie to keep families in their homes and foreclosures off the market. Without these steps, he believes, the transition of Florida communities from ownership to rental will come even faster.

Meanwhile, demand from the state’s traditional source of second home owners is drying up. Many of today’s retirees are thousands of dollars in debt on their home, can’t buy a retirement home, don’t want to tap the nest egg and they can’t move to Florida. So they just go down to Florida for a few months and rent, he said. Resort and retirement communities are transitioning from owner/occupant to rental.

In parts of Florida, foreign buyers are now a major part of the market. Some 80 percent of sales in Miami/Dade are to foreign nationals and over 70 percent are cash transactions. In other parts of the state, Canadians and Brits are major buyers. Properties are marketed abroad and McCabe knows of several South Florida condo developments where buyers must pay incrementally as the projects are built, foregoing the need for financing. “These are designed from the outset for foreign ownership,” he said.

“What’s happening in Florida’s retirement market is the tip of the iceberg. It’s a bellwether and we are already seeing the changes underway,” said McCabe, pointing to changing attitudes towards homeownership, especially among young people. “Young people are viewing homeownership negatively compared to other investments.”

However, McCabe is not giving up. “We’ve bailed out the banks, bailed out the automakers, bailed out the airlines, and in the past many other businesses considered important to the American economy,” he said in his Sarasota column.

“The American Dream Recovery Program is a working solution that puts the American people first. ”

Distressed properties accounted for a hefty 46.1 percent of home purchase transactions in November as reported in the HousingPulse Distressed Property Index (DPI), using a three-month rolling average. Significantly, November marked the 23rd month in a row that the DPI has been above 40 percent.

At the same time, however, homebuyer demand for housing appears surprisingly strong, especially for lower-priced foreclosed properties or real estate owned (REO). Time on market for move-in ready REO was just 10.1 weeks in November, the lowest in 15 months, according to HousingPulse. Time on market for damaged REO was even lower at 9.0 weeks in November, also the lowest in 15 months.

Short sales were the largest segment of the distressed property market during the month of November, accounting for 17.6% of total home purchase transactions tracked in the HousingPulse survey. Move-in ready REO was the next largest group of distressed properties with a 15.2% share, followed by damaged REO with a 13.3% share of total transactions. Non-distressed home purchases accounted for the remaining 53.9% of home purchases in November.

Average pricing for distressed property was substantially lower than for non-distressed property. The average short sale sold for $209,200 in November, while the average move-in ready REO sold for $189,700. Damaged REO sold for far lower at $98,600. At the same time, non-distressed properties sold for $258,900.

Real estate agents responding to this month’s HousingPulse survey commented on the appraisal system and how the low prices for distressed properties impact overall home prices. “The foreclosure/short sale markets are making it difficult to get non-distressed homes to appraise. This is holding off a market comeback in my area,” reported an agent in Maryland.

“We could sell the homes for more but the appraisals are an issue since they are using short sales and foreclosures as comps,” explained an agent in Florida. “Given the multiple offers and the short time on the market, one would expect that prices would be on the increase; however, appraisal guidelines are holding it back,” complained an agent located in Michigan.

The appraisal system for mortgage originations uses comparative values from both distressed and non-distressed properties, with appraisers often not knowing the interior condition of foreclosed homes or the special circumstances of short sales. Prices agreed-to in purchase and sales contracts are sometimes not being supported by appraisals for mortgage financing that use faulty comparative values. These properties then sell to cash buyers for less, causing declines in average home prices.