Sales of distressed properties could pull home prices down by another 10%, according to CoreLogic chief economist Mark Fleming.
The CoreLogic House Price Index is already down 35% from the peak of values established in 2006.
"It wouldn't be surprising to see 10% declines," he said, citing a "shadow inventory" of 2 million loans that are 90 days or more past due and in foreclosure.
In addition, there are 3.5 million homes currently listed for sale and about one-third of those sales involve foreclosed properties and short sales.
In markets with high concentrations of REO, distressed properties are selling at "big discounts" of around 30% to 35%, said Fleming during a Wednesday presentation in Washington.
But he noted that prices are stabilizing in healthy markets. The February CoreLogic HPI that excludes distressed sales fell by only 0.7% over the past year, compared to 6.7% for the HPI that includes REO and short sales.
In many metropolitan areas, the urban centers and inner suburbs are weathering the housing recession fairly well with the outer suburbs suffering the most as measured by defaults and foreclosures. "That's where a lot of the building activity happened," Fleming told National Mortgage News. "The tenure of those homes is much shorter — they got mortgages at the height of the market and they have less equity to start with."