24/7 Wall St.

Last December, 16.2% of all home sales involved distressed properties, according to a recent report. These homes were sold at an average discount of nearly 40% when compared to conventional, non-distressed homes.

Housing data site RealtyTrac recently released its Year-End 2013 U.S. Residential & Foreclosure Sales Report. According to the report, some of the largest U.S. cities are still processing foreclosed homes. In 10 of the nation’s largest metro areas, more than one in four home sales last year were of such properties. In Las Vegas, 41% of homes sold last year were distressed properties. 24/7 Wall St. examined the 10 large housing markets where short sales and foreclosure-related sales represented at least one in every four home sales last year.

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In most cases, properties involved in the foreclosure process sell for less than comparable conventional properties. That discount varies from city to city. In Las Vegas, bank-owned and auctioned-off homes sold for 15% less on average than normal homes. In Detroit, another city where foreclosure-related sales made up a large proportion of transactions, the discount was a whopping 72%.

Traditionally, one of the leading causes of high foreclosure rates is unemployment. “Historically, unemployment is the number one driver of homeowners getting into trouble and potentially getting foreclosed on,” Daren Blomquist, vice president at RealtyTrac told 24/7 Wall St. Unemployment rates in six of the 10 metro areas with the most distressed home sales were at or above 8% as of November, above the national unemployment rate that month of 7%. In areas such as Las Vegas and Detroit unemployment has been high for years. However, Blomquist also noted that, during last decade’s housing bust, defaults due to toxic loans often preceded high unemployment rates. While this was true at the time, “if we start to see areas that are experiencing big jumps in new foreclosure activity, it is probably going to be tied to unemployment.”

Many of the areas with a large number of distressed property sales were among the hardest hit during the housing crisis. However, in many areas the worst of the crisis may be in the rear view mirror and the recovery well on its way. According to Blomquist, “We’re in the cleanup phase of the foreclosure crisis. But that cleanup phase does need to happen for the market to get back to full health.” This cleanup, he explained, involves the sale of homes that were foreclosed during the crisis, or in its aftermath.

The housing markets in many of the cities with a high proportion of distressed home sales have begun to recover as well. Home prices were up by at least 10% between December of 2012 and 2013 in most of the 10 metro areas where the portion of distressed sales was highest. Even in Las Vegas, arguably the epicenter of the housing bust, sales of newly-built homes rose by 32% in 2013, according to Home Builders’ Research.

Based on figures compiled by RealtyTrac, 24/7 Wall St. determined the 10 housing markets with the highest percentage of distressed properties sales. In order to be considered distressed, a sale had to involve property sold “short” — meaning for less than the value of the outstanding mortgage(s) — or had to have been a foreclosure-related sale. Foreclosure-related sales include properties sold at foreclosure auctions and the disposal of bank-owned real estate. We also reviewed income and poverty figures from the U.S. Census Bureau for 2012, as well as seasonally-adjusted unemployment rates from the Bureau of Labor Statistics.

10. Sacramento–Arden-Arcade–Roseville, Calif.
> Pct. distressed sales: 25.4%
> Unemployment rate: 8.2%
> Pct. change in home prices: 22%

More than one-quarter of Sacramento area homes sold in December were distressed, versus slightly more than 16% nationwide. Additionally, 18.6% of home sales were foreclosure-related, meaning they involved either a bank-owned property or a sale at a foreclosure auction. This was among the highest rates in the country for a major metropolitan area. Foreclosure-related properties were sold at a 22% discount over other properties sold that month, lower than the 38% discount for such homes nationwide.

9. Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
> Pct. distressed sales: 26.9%
> Unemployment rate: 8.7%
> Pct. change in home prices: N/A

Chicago is one of the largest housing markets in the country, with an annualized total of than 170,000 homes sales as of December, according to RealtyTrac. Of area sales in December, more than a quarter were short-sales or foreclosure-related. One reason the city may have so many distressed homes is its long-term struggle with high unemployment. The metro area’s November unemployment rate was 8.7%, sixth highest of any major city measured. Perhaps showing early signs of recovery, foreclosure starts in Cook County, the metro area’s most populous county, fell by more than 40% in 2013.

ALSO READ: Detroit Has Many Homes Worth Less Than $10,000

8. Cleveland-Elyria-Mentor, Ohio
> Pct. distressed sales: 28.6%
> Unemployment rate: 7.3%
> Pct. change in home prices: 12%

Foreclosure-related sales accounted for 21.7% of all home sales in the Cleveland area in December, more than any metro area considered except for Las Vegas. However, institutional investors — who often buy homes that have been foreclosed — do not appear to be targeting distressed properties in and around Cleveland. Institutional sales accounted for just 4.5% of all homes sold at the end of last year, lower than in many other metro areas considered and below the national percentage of such sales. While this suggests individuals and families account for most home buyers, it may also indicate investors’ lack of interest in the local economy. Incomes in the metro area are fairly low as well. The Cleveland area’s median household income was just $46,944 in 2012, versus more than $51,000 nationwide.

7. Riverside-San Bernardino-Ontario, Calif.
> Pct. distressed sales: 28.8%
> Unemployment rate: 9.6%
> Pct. change in home prices: 23%

While the housing crisis may be in the rear view mirror for much of the country, the housing market in the Riverside metro area continues to process its effects. Foreclosure-related accounted for more than 21% of all homes sold in the area at the end of last year. Additionally, many area residents were unemployed. The area’s unemployment rate was 9.6% as of November, higher than any other major metro area. However, not all news for the area has been bad. Riverside area homes had a median sales price of $232,000 in December, well above the U.S. median of $168,391. Additionally, sales prices were up 23% compared to the year before, one of the largest increases among major metro areas.

ALSO READ: American Cities Adding (and Losing) the Most Jobs

6. Memphis, Tenn.-Miss.-Ark.
> Pct. distressed sales: 29.5%
> Unemployment rate: 9.5%
> Pct. change in home prices: N/A

Nearly 30% of home sales December in the Memphis metro area were either short sales or foreclosure-related sales. While according to figures released by the Federal Reserve in its Beige Book both home sales and housing permits had risen considerably in 2013, part of this activity may be investor speculation rather than families buying a home. At the end of last year, institutional investors accounted for nearly 18% of sales in Memphis, fifth-most among metro areas considered. The city continues to struggle with unemployment, with a jobless rate of 9.5% as of November and relatively sparse job growth.

5. Miami-Fort Lauderdale-Pompano Beach, Fla.
> Pct. distressed sales: 29.6%
> Unemployment rate: 6.8%
> Pct. change in home prices: 25%

In the Miami metro area, all-cash sales accounted for more than 64% of home sales in December 2013, more than any MSA reviewed by RealtyTrac except for Jacksonville. By contrast, 42.1% of U.S. residential sales in December were all-cash purchases. Often, all-cash purchases are made by international investors and wealthy retirees rather than local families. It may be that locals are unable to compete with all-cash home buyers. As of 2012, income disparities in the Miami area were among the largest in the U.S.

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4. Tampa-St. Petersburg-Clearwater, Fla.
> Pct. distressed sales: 30.1%
> Unemployment rate: 6.3%
> Pct. change in home prices: 14%

More than 30% of Tampa area home sales were distressed sales as of December. Despite the high level of distressed sales in the metro area, the Tampa Bay region has seen a rise in conventional home sales. The median home sales price that month was $112,000, less than most metro areas considered. Perhaps as a result, more than 57% of the Tampa Bay area’s real estate deals were cash sales in December of last year. Also contributing to a high number of cash sales, a relatively large portion of homes were sold at foreclosure auctions. According to Blomquist, buyers at such auctions must often pay cash.

3. Detroit-Warren-Livonia, Mich.
> Pct. distressed sales: 31.2%
> Unemployment rate: 9.3%
> Pct. change in home prices: 33%

The median sales price of a home in the Detroit metro area jumped by 33% between December 2012 and December 2013, more than any other city considered. Despite the jump, prices remained quite low, with a median home price of just $93,010 at the end of last year. Many of the cheapest homes on the market were likely either bank-owned properties or sold at foreclosure auctions. These homes were sold at a 72% discount from normal homes and accounted for 21.3% of all sales — in both cases more than in all but two other metro areas. The mortgage crisis hit Detroit’s housing market hard, and while the housing market has recovered somewhat, the city of Detroit recently entered into bankruptcy after years of accumulating debt while losing residents.

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2. Orlando-Kissimmee, Fla.
> Pct. distressed sales: 35.9%
> Unemployment rate: 5.9%
> Pct. change in home prices: 19%

Nearly one in five home sales in the Orlando area was a short sale in December of last year, meaning it sold below the value of the mortgage on the property. In addition to this, another 16% of homes sold were foreclosure-related, making Orlando the second most popular metro area for distressed sales. Many regions in Florida, including Orlando, were hit hard by falling prices during the housing crisis. The situation has improved somewhat, but last month 57% of sales were all-cash, implying families have still not fully returned to the market.

1. Las Vegas-Paradise, Nev.
> Pct. distressed sales: 41.0%
> Unemployment rate: 9.2%
> Pct. change in home prices: 25%

Of all home sales in Las Vegas 41% were foreclosure auction sales and distressed sales, by far the highest in the country. The median sales price in the Las Vegas metro area was just $159,000 in December, below the nationwide median of $168,391 despite rising 25% from the year before. By several measures, the Las Vegas housing market is trending in the positive direction, as is the area economy as a whole. Speaking to the Las Vegas Review Journal, Brookings Institution’s Mark Muro noted, “There’s some normalization of the real estate market, and that’s a broad background benefit for the overall economy.” But as of November the area’s jobless rate remained above 9%, versus just 7% unemployment nationally.