Roughly 20% of home sales in the three months ending in August were previously foreclosed homes, a drop from more than 26% for the previous three months and the lowest percentage since April 2008, according to analytics firm Clear Capital.

At its height in 2009, more than 40% of sales were REO properties. The result has been an increase in prices and much brighter housing outlook.

National home prices increased 2.9% in August from one year ago, Clear Capital said.The reduction in the percentage of REO is a result of the recent $25 billion settlement and new state legislative changes that slowed the foreclosure process.

But Alex Villacorta, director of research at Clear Capital, said banks in general are changing their strategies for handling an inventory of more than 4 million foreclosed homes.

“As we’ve seen, these different strategies paid off, specifically looking at short sales,” Villacorta said. “It’s certainly a good sign that there has been an acclamation.”

He added the percentage of REO sales will likely increase to near 25% by the end of the year as seasonal changes take hold in a usually slower homebuyer season.

But for the first time since April 2011, prices for homes not in distress increased faster than REO properties. The percentage of homes purchased by investors dropped 30% over the past year, Clear Capital said.

Villacorta said is one of the clearest signs of where the market is heading, especially as it potentially hits more uncertainty caused by the election and the coming fiscal cliff.