NEW YORK (MainStreet) — In another sign the housing market is returning to normal, "distressed" sales have dropped to the lowest level since December 2007.

The category covers sales due to the homeowner's financial troubles: short sales, in which the lender agrees to retire the debt for less than is owed, usually after the homeowner has fallen behind on payments; and real-estate-owned sales, in which the lender sells a home acquired through foreclosure.

CoreLogic, a market-data firm, says distressed sales accounted for 11.4% of all sales in June, down from 15.8% a year earlier. REO sales accounted for 7.2% of sales, short sales for 4.2%.

"At its peak, the distressed sales share totaled 32.5% of all sales in January 2009, with REO sales making up 28% of that share," CoreLogic said.

The dramatic drop in distressed sales is accompanied by a large decline in foreclosures, now the lowest in six years.

The heavy discounts in distressed sales depress home prices in general. So a reduction in distressed sales is good news for all homeowners. It also means, however, that it is harder for buyers to find bargains.

"The more recent shift away from REO sales is a driver of improving home prices, as REOs typically sell at a larger discount compared to healthy sales than do short sales," CoreLogic said.

Despite the improvement, at 11.4%, distressed sales still make up a larger-than-normal share of the market, CoreLogic says.

"There will always be some amount of distress in the housing market, so one would never expect a 0% distressed sales share, but the pre-crisis share of distressed sales was traditionally about 2%."

Certain markets are still far from normal. In June, distressed sales account for 27% of sales in Michigan, 24.1% in Illinois, 23.6% in Florida and 20.7% in Georgia.

As mentioned, less competition from distressed sales is good news for sellers. But it doesn't mean prices will surge, because more sellers could enter the market, spurring competition that will help keep prices from rising too quickly.

Some prospective buyers may lament the decline in bargain basement distressed listings, but buyers will benefit if more "normal" homes are put on the market. Many distressed offerings have problems, because homeowners with financial troubles tend to skimp on maintenance and repairs.

In general, this is a good time to house hunt. Prices have gone up, but in most places not very quickly. Since they're not likely to surge, buyers can take time to shop carefully. And mortgage rates are still attractive. Most important, a return to normal means the buyer can purchase without worrying too much that home values will fall.

For prospective sellers a steady market means one can put a home up for sale without too much concern about missing out on higher prices later. And there often are more buyers when loan rates are low.


--Written by Jeff Brown for MainStreet