While sales of distressed properties-foreclosures and short sales- have shrunk since the first of the year, a surge in sales of “normal” non-distressed properties has pushed total home sales through June 4.5 percent higher than last year even though buyers face by tight credit and low inventories.

With attention focused on extraordinarily tight inventories that have restricted sales during the past six months, market share of non-distressed homes are at their highest level since August 2008, a sign of strengthening demand  from buyers realizing their time has come to act before prices increase further, a slowly improving employment picture and greater consumer confidence.

During the January to June period, the number of non-distressed sales is up 15 percent over the same period last year, according to CoreLogic.

The increase in non-distressed sales is strengthening prices.  Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 3.2 percent in June 2012 compared to June 2011. On a month-over-month basis excluding distressed sales, home prices increased 2.0 percent in June 2012 compared to May 2012, the fifth consecutive month-over-month increase., according to the National Association of Realtors.

Both supply and demand are playing a role in the decline of distress sales and increase in normal sales.  In June, the distressed share of sales fell to 21 percent, the lowest level in almost four years.  The months’ supply of distressed properties has been steadily decreasing over the first half of the year and now stands below seven months, equaling the same level of the supply of active listings.

Increased competition for the limited inventory of non-distressed property listings helped push the average home sales-to-listing price ratio to 95.6 percent in June, the highest in three years, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

HousingPulse reports that median time on market to sell a non-distressed listing fell sharply in June to 11.7 weeks, a drop of a full week from the May reading of 12.7 weeks. As recently as March, the non-distressed property time on market had been 14.0 weeks. The June 2012 time on market for non-distressed listings is the lowest in over two years and substantially below the June 2011 reading of 15.0 weeks.

“Strong demand, particularly in areas of California, Arizona and Nevada, are pushing up home prices very quickly in the short-term. And because many of the home purchases in these areas are cash transactions, there appears to be less braking of prices by our current appraisal system than seen in other parts of the country,” noted Thomas Popik, research director for Campbell Surveys and chief analyst for HousingPulse.

Demand for normal homes is increasing despite the fact that buyers face serious hurdles.  Tight credit persists: only 46 percent of applicants for purchase mortgages are getting approved these days, up from 40 percent in December, according to Ellie Mae.  Total inventories are tight, down 20 percent from a year ago, and pickings are slimmer in many markets than they have been in years.    Nearly one quarter of homeowners with a mortgage are still frozen in place by negative equity and can’t sell or buy

Nearly half of all seriously delinquent borrowers have stayed in their homes more than a year in judicial states, which have developed a serious backlog of pre-foreclosures, according to June data from LPS Analytics.

The data suggests that delinquent borrowers are taking advantage of slower processing in judicial states by not paying mortgages long after they are overdue without suffering foreclosure.

On a month-over-month basis, the national delinquency rate for loans 90 or more days delinquent remained stable, but after months of tracking very closely, LPS reported that the rate in judicial foreclosure states is now higher than in non-judicial.

The share of aged inventory is higher in judicial states as well, with nearly 50 percent of borrowers with loans 90 or more days delinquent not having made a payment in more than one year, as compared to just slightly more than 40 percent in non-judicial states. Further, nearly 60 percent of borrowers with loans in foreclosure in judicial states had not made a payment in at least two years, as of June.

LPS’s June data also shows that the rate of new problem loans entering the delinquency pipeline remained stable at multi-year lows; late-stage delinquencies have also shown improvement over the last year, dropping more than seven percent.

LPS also reported that three of the five states with highest percentage of non-current loans are judicial states: Florida, New Jersey and Illinois.

As interest grows in creating a marketplace to sell securitized blocks of single family rentals, similar to the securitization of mortgages, perhaps as early as this year, the authoritative ratings service Fitch Ratings today made it clear that the asset class poses some unique risks and that high investment grade ratings will be difficult to attain due to the lack of historical data and “ambitious growth strategies by regional operators”.

Investors in single family homes, especially well-funded newcomers flush with hedge fund financing, are betting on the development of a secondary market for securitized rental properties to create a demand for bulk sales from investors familiar with the secondary mortgage markets.

Market interest for proposed REO-to-rental securitizations is high and actual securitization could materialize by the end of this year or early-2013, Fitch said. However, Fitch made it clear that securities seeking a better rating are going to have to meet stringent requirements that look beyond price and yield.

First, this is real estate and location counts. Local employment base and the desirability and quality of neighborhoods will determine prospective SFR markets. The underlying quality of securities will involve management quality and expertise. Durability of cash flow, stability of value over time, liquidity and other structural considerations will be important considerations

In ranking securities, Fitch will focus on: Company experience and operating capacity; market analysis; lease terms; tenant underwriting and property marketing; operative efficiency and management continuity.

Fitch also announced it will likely impose rating caps on SFR transactions based on several performance issues such as limited data for the sector and for individual management firms, historical data for market rents, rent roll histories, vacancy rates and supply and demand.