The fallout from a fragile economy may send REOs and short sales back on the rise in the coming months, according to a new report released by Clear Capital. "With stocks plummeting last week and the global economic impact on our domestic economy and housing markets still unknown, distressed sales continue to be a critical market indicator," according to Clear Capital's latest report. NAR's latest housing report: 6 Key Housing Stats to Gauge the Market Nationally, distressed saturation (the percentage of REOs and short sales to all sales) rose by 0.7 percent in August on a quarterly basis, increasing from 15.4 percent to 16.1 percent. The distressed saturation is near pre-2008 rates, however, a rise into winter could send distressed rates much higher, according to Clear Capital. The West and Midwest's distressed saturation rates are higher than the rest of the country, rising by 0.9 percent and 1.2 percent, respectively. The largest increases in distressed saturation have emerged in the South, however, which has seen a 1.5 percent increase from 18.6 percent to 20.1 percent. The Northeast has been the only region to see a drop in distressed saturation from 14.3 percent to 14 percent. "Distressed saturation continues to be a challenge we face in today's housing market," says Alex Villacorta, vice president of research and analytics at Clear Capital. "In fact, today's 'traditional' housing market continues to be defined by distressed saturation levels. In Act One, at the start of the downturn, distressed properties were an albatross around housing's neck. In Act Two, between 2011 and 2013, investors stepped in, buying, rehabbing, and selling or renting distressed properties, which gave way to higher demand and rising prices. While the overall effect of higher rates of distressed satisfaction in Act Three of the recovery is unknown, one thing is clear; when it comes to housing, REOs and short sales are not a passing fad." Last week's stock market plunge leaves the economy in a tenuous state, particularly as the summer home buying season wraps up. Clear Capital researchers note that the final part of the year will be a big test on whether the housing recovery will be able to withstand the global volatility. "If investors pull out, oversupply of distressed inventory could bring us back to Act One," Villacorta says. "Or, a renewed source of distressed inventory could revive demand from investors and traditional home buyers, alike, in an inventory-starved market. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate."

Source: Housing Wire